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4000 - Advisory Opinions


Company Which Never Has Actual Possession of Investor's Principal But Facilitates Placement of Deposits Is Deposit Broker

FDIC-92-53

August 3, 1992

Valerie J. Best, Counsel

This is in response to your recent letter concerning deposit brokers. You ask if your company and its employees are "deposit brokers" as that term is defined in the Federal Deposit Insurance ("FDI") Act. Based upon the information provided, your company and its employees are "deposit brokers." Please consider the following.

Activities of ***

Your company gathers pertinent data from insured depository institutions including the rates of interest offered at various terms, the minimum deposit necessary to acquire that rate of interest, the geographic area from which the institutions wish to draw funds, and data as to the financial strength of the depository institution. You then call the institutional investor whose certificate of deposit portfolio you manage. If that investor is in the market and finds a rate and term that fits into their investment scheme, you disclose all of the information known to you regarding the depository institution selected.

Two scenarios may then unfold. Under the first scenario, you call the depository institution and provide it with relevant information concerning the investor (e.g., the investor's name, address, tax identification number, contact person, term and amount of deposit desired, etc.). The investor then wires the amount of deposit directly from their depository institution to the receiving depository institution. The receiving depository institution issues the certificate of deposit. Under the second scenario, you provide the information concerning the depository institution to the investor who then calls the depository institution directly, provides the information necessary to open the certificate of deposit, and then wire transfers funds to the issuing depository institution. Under either scenario, your company is never in possession of the investor's principal or interest and never acts as trustee or as agent for the investor. Your company tracks the certificate of deposit portfolio for the investor and advises on portfolio yield, trends, and alerts the investor to upcoming maturities that will need action. Your company is paid a monthly fee for these services.

Definition of ``Deposit Broker''

The term "deposit broker" is defined in section 29 of the FDI Act to mean:

(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.

12 U.S.C. 1831f(g)(1)(A) and (B).

Several exceptions to the definition of "deposit broker" are set out in the statute, most of them concern depositors acting in certain, specifically described, fiduciary relationships (e.g., the trust department of an insured depository institution, the trustee of a pension plan, etc.).1 None of the exceptions appears to apply to your company or its employees.

FDI Act Requirements Applicable to Deposit Brokers

Deposit brokers are prohibited from soliciting or placing any deposit with an insured depository institution unless the deposit broker has provided the FDIC with written notice that it is a deposit broker.2 Further, undercapitalized insured depository institutions are prohibited from accepting funds obtained by or through any deposit broker. Adequately capitalized insured depository institutions are prohibited from accepting funds obtained by or through any deposit broker unless they first obtain a waiver from the FDIC. Well capitalized insured depository institutions, however, may accept such funds without restriction.3

Discussion

The fact that your company is never in possession of the investor's principal or interest and never acts as trustee or agent for the investor, does not exempt it from the FDI Act requirements applicable to deposit brokers. The key test is whether your company 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 . . . ."4 In other words, the FDI Act covers scenarios where the broker "facilitates the placement" of deposits, as well as scenarios where the broker places deposits in its name as nominee or agent for others. In common usage, the term "facilitate" means "to free from difficulty or impediment; to make easy or less difficult."5 The activities of your company clearly make it easier for the investor to place its deposits with insured institutions.

For the most part, the definition of "deposit broker" used in the FDI Act is derived from regulations issued by the FDIC and the Federal Home Loan Bank Board in 1984 that were subsequently overruled as an invalid exercise of authority.6 The term "deposit broker" was broadly defined in those regulations and, likewise, is broadly defined in the statute, because deposit brokering may occur in any one of several ways. In fact, the discussion accompanying the 1984 regulations specifically describes as "deposit brokering" a situation such as yours where a broker, acting on its own or at the request of an institution or institutions, solicits deposits from its customers, and the interested customer sends funds directly to the receiving depository institution which has been given notice by the broker of the impending purchase.7 Even where the investor, after having been contacted by you, calls the depository institution directly to establish an account, you would be considered to be a deposit broker because you are "facilitating the placement" of deposits; the broad definition of deposit broker used in the FDI Act encompasses such "match-making" or "finder" activities.

Based on the foregoing, your company and its employees are "deposit brokers" as that term is defined in the FDI Act. As a result, they are subject to the registration requirements imposed by the FDI Act. A company may file a single notice on behalf of all of its employees and/or agents. However, the FDIC reserves the right to require individual information at any time.

From your letter, I understand that you are also interested in the restrictions imposed on deposit listing services. Enclosed for your review is a letter concerning such services.

You may write to me at the above address if you have additional questions.

112 U.S.C. 1831f(g)(2)(C). Go back to Text

212 U.S.C. 1831f--1(a). 57 Fed. Reg. 23933, 23944 (June 5, 1992) (to be codified at 12 C.F.R. 337.6(h)). Go back to Text

312 U.S.C. 1831f. 57 FR 23933 (June 5, 1992) (to be codified at 12 C.F.R. 337.6). Go back to Text

412 U.S.C. 1831f(1)(A) (emphasis added). Go back to Text

5Black's Law Dictionary 591 (6th ed. 1990). Whether or not the activities must be more than merely incidental to the placement of the deposits is not at issue in this case, given the level of activities of your company. Go back to Text

6The brokered deposit amendments to Senate Bill 774 were sponsored by Senator Murkowski. 135 Cong. Rec. S 4266 (daily ed. April 19, 1989) (statement of Sen. Murkowski). Sen. Murkowski had proposed similar legislation to restrict brokered deposits prior to sponsoring the amendment to Senate Bill 774. While introducing these earlier bills, Mr. Murkowski referenced the 1984 regulations and stated that the bills were intended to restore the provisions of the 1984 FDIC and Federal Home Loan Bank Board regulation that was subsequently overruled in federal court as an invalid exercise of authority. 134 Cong. Rec. S 11456 at 11457 (daily ed. August 10, 1988) and S 115999 at 11600 (daily ed. August 11, 1988) (statements of Sen. Murkowski) and 135 Cong. Rec. S 1418 (daily ed. February 9, 1989) and S 1934 (daily ed. March 1, 1989) (statements of Sen. Murkowski). Go back to Text

748 Fed. Reg. 50339 (Nov. 1, 1983). Go back to Text


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