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4000 - Advisory Opinions

Whether certain types of services qualify as nondeposit banking services


November 25, 1997

Jamey Basham, Counsel

I am writing to respond to your letter dated October 14, 1997. It was a pleasure to speak to you on the phone subsequently. You have asked me to clarify whether four types of services your bank provides customers are "other nondeposit banking services" within the meaning of paragraph 346.6(a)(3) of the FDIC's Rules and Regulations, 12 C.F.R. § 346.6. My opinion is that these services would not qualify as other nondeposit banking services.

Section 346.6 specifies what deposits in an initial amount of less than $100,000 may be accepted by an uninsured branch of a foreign bank without the foreign bank being deemed to be engaged in domestic retail deposit-taking activity. Paragraph 346.6(a)(3) authorizes the branch to accept deposits from persons (including immediate family members of natural persons) to whom the branch or foreign bank (including any affiliate thereof) has extended credit or provided other nondeposit banking services within the past twelve months or has entered into a written agreement to provide such services in the next twelve months. The rule does not require the nondeposit banking service to exceed any minimum threshold or be in some way proportional to the size of the deposit relationship in question. In fact, as an example of a nondeposit banking service which would qualify under paragraph 346.6(a)(3), the FDIC's preamble to the final rule mentioned the leasing of a safe deposit box. 61 Fed. Reg. 5671, 5672 (February 14, 1996).

However, the four services you list in your letter cannot be characterized as "nondeposit banking services" for purposes of paragraph 346.6(a)(3), because each of them involves the receipt of funds in a manner which is itself specified as a permissible deposit which may be accepted by an uninsured foreign branch under other paragraphs of section 346.6:

Effecting remittances on behalf of customers within and outside the U.S.A.: This is authorized by paragraph 346.6(a)(6), permitting a foreign branch to accept funds deposited in connection with the issuance of a financial instrument by the branch for the transmission of funds or the transmission of such funds by any electronic means.

Sale of demand drafts, treasurers checks, and other such instruments: This is also authorized by paragraph 346.6(a)(6).

Opening of commercial letters of credit and negotiation of export documents, which in our telephone conversation you indicated would be in connection with international import-export transactions: This is authorized by paragraph 346.6(a)(4), permitting a foreign branch to accept funds from persons from whom an Edge Corporation may accept deposits under paragraph 211.4(e)(1) of Regulation K, 12 C.F.R. § 211.4(e)(1). Paragraph 211.4(e)(1)(ii)(C) permits an Edge Corporation to accept deposits from any person in the U.S. if the funds are the proceeds of collections abroad to be used to pay for imported or exported goods or for other costs of exporting or importing.

Handling of documentary and clean collection business, which in our telephone conversation you indicated would also be in connection with international import-export transactions: this is also authorized by paragraph 346.6(a)(4) through paragraph 211.4(e)(1)(ii)(C) of Reg K.

Since the receipt of funds in any of these ways is treated as a permissible deposit taking activity under section 346.6(a), it is not possible to characterize them as nondeposit services under paragraph 346.6(a)(3).

I hope this clarifies your concerns in this matter. If I can be of further assistance, please do not hesitate to contact me at (202) 898-7265.

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