4000 - Advisory Opinions
Deposit Broker Engaged in the Business of Placing Deposits, or Facilitating the Placement of Deposits
June 12, 1990
Adrienne George, Attorney
In a letter you wrote to Alan Kaplan, Senior Counsel of our office, on May 16, 1990, you asked two questions:
(1) Is *** acting as a deposit broker when it lists rates on jumbo certificates of deposit (hereinafter "CD's")?
(2) Would deposits coming directly to institutions which list rates through your service be considered brokered deposits?
You describe the activities of *** as follows:
*** is a computerized rate listing service for jumbo CD issuers. Essentially, we link thousands of potential buyers and sellers of CD's together. Our clients credit us with having the most accurate and effective rate-gathering *** in the industry. Each week our researchers gather rate information from over 3500 banks and savings and loans to give the best overall sampling of the market place.
The buyers in the market support our system with monthly subscription fees, similar to any print publication. We do not monitor, intervene or collect fees on any transaction nor is there any other type of service charge associated with our service. All placements are made direct between buyer and seller.
Our software is also available to issuers of jumbo CD's for the purpose of surveying the market before setting their rates. They too pay a monthly subscription fee. The value to these subscribers is in helping them to price funds effectively to compete in the national market. Issuers do not pay a listing fee, nor do they pay any fees associated with the placement of funds within their institutions. Issuers are not required to be subscribers to our service in order to be listed.
We provide similar information in various formats, some of which include information published in Investor's Daily, Banker's Monthly, Southern Banker, Western Banker and the Financial News Network (FNN).
May 16, 1990 Letter of ***, Chief Executive Officer of *** to Alan Kaplan, Senior Counsel, FDIC, page 1.
The Federal Deposit Insurance Act (hereinafter "FDI Act"), as amended by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (hereinafter "FIRREA"), defines "deposit broker" as follows:
(A) any person engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions or the business of placing deposits with insured depository institutions for the purpose of selling interests in those deposits to third parties; and
(B) an agent or trustee who establishes a deposit account to facilitate a business arrangement with an insured depository institution to use the proceeds of the account to fund a prearranged loan.
FDI Act, § 29(f)(1), 12 U.S.C.A. § 1831(f)(1) (1989). Only the first part of the definition, which appears in subsection (A), is pertinent to our discussion of ***.
The interim rule on brokered deposits repeats the above-quoted definition from the FDI Act verbatim and provides the following two-pronged definition of "brokered deposit":
The term "brokered deposit" means any deposit, as that term is defined in section 3(1) of the Federal Deposit Insurance Act (18 U.S.C. 1813(1)), that is obtained from or through the mediation or assistance of a deposit broker or by offering a rate of interest (with respect to such deposit) which is significantly higher than the prevailing rate of interest on a deposit with similar terms and conditions, including maturity, offered by other insured depository institutions having the same type of charter (bank or thrift) in the institution's normal market area. For this purpose, a rate of interest is deemed "significantly higher" if, when including any fees paid directly or indirectly to any third-party, it is more than 50 basis points higher than the prevailing rate offered or agreed to at the time for deposits of comparable amount, maturity and other terms by other insured depository institutions with the same type of charter (bank or thrift) in the institution's market area.
Interim Rule at 12 C.F.R. § 337.6(a)(1). 54 Fed. Reg. 51014 (Dec. 12, 1989).
In discussing how Congress (in FIRREA's amendment of the FDI Act) and the FDIC (in the Interim Rule) have defined "deposit broker" and "brokered deposits," it should be noted that, at one point, Congress had decided to exclude listing services from the amended FDI Act's section on brokered deposits. However, that exclusion was deleted in the Senate, with Senator Murkowski stating, "Listing services will now be covered by the amendment." 135 Cong. Rec. S4268 (daily ed. April 19, 1989) (statement of Sen. Murkowski). We construe this statement to mean that each listing service must be examined individually, to see if it falls within the parameters of the term "deposit broker."
The key test is whether *** may be said to be "engaged in the business of placing deposits or facilitating the placement of deposits, of third parties with insured depository institutions or the business of placing deposits with insured depository institutions for the purpose of selling interests in those deposits to third parties." 12 U.S.C.A. § 1831(f)(1)(A) (emphasis added).
In our opinion, *** is engaged in providing information on current interest rates to its subscribers, be they individuals considering whether to purchase jumbo CD's, or depository institutions attempting to set a competitive rate of interest for such CD's. What *** facilitates is the decision of the would-be buyer whether (and from whom) to buy a CD, or the decision of the depository institution as to what rate to set; it is not facilitating the placement of deposits per se. It is important, however, that the only funds the *** receives come from its subscribers, as payment for their opportunity to see the rates which the *** has gathered. If a depository institution had to pay a fee to have its rates listed by the *** we would view that as facilitating the placement of deposits, and hence as deposit brokering. Further, even if the only payment received by the *** came from its subscribers as subscription fees, if the *** were involved in placing the deposits--for instance, if customers seeking to place deposits gave the *** their names and other pertinent information and the *** passed that information along to the given depository institution, that, too, would be viewed as deposit brokering (and this would be true even if the funds involved were sent directly from the CD-buying customer to the institution, without any other involvement by the ***.
In answer to your first question, then, it appears from your description of the *** activities that the *** is not acting as a deposit broker.
Next, you ask whether deposits coming directly to those institutions which list rates through your service could ever be considered "brokered deposits." The answer here is yes, such deposits could be considered brokered deposits if the rate of interest being offered on them is "significantly higher"--that is, more than 50 basis points higher--than the prevailing rate of interest on a deposit with similar terms and conditions, including maturity, offered by other insured depository institutions having the same type of charter (bank or thrift) in the institution's normal market area. Interim Rule at 12 C.F.R. § 337.6(a)(1). 54 Fed. Reg. 51014.
I hope that this information will be useful to you. If I can be of any further help, I can be reached at (202) 898-3859.