• FDIC Issues FAQs on Brokered Deposits
  • April 16, 2015 | Author: Katharine F. Musso
  • Law Firm: Jones Walker LLP - Birmingham Office
  • The Federal Deposit Insurance Corporation ("FDIC") issued a new Financial Institution Letter on January 5 regarding brokered deposits. FIL-2-2015 updates the FDIC's ongoing guidance. The parameters of what constitute "brokered deposits" or a "deposit broker" are unchanged. The application of these definitions to certain fact patterns, however, suggest a shifting regulatory focus.

    FIL-2-2015 takes the form of Frequently Asked Questions. The most recent FDIC FAQs issued in 2011, focused on defining "high-rate" areas for purposes of using the national rate caps on deposit pricing which took effect in January 2010. The 2015 FAQ's inventory the people and services likely to be subject to the brokered deposits rules set forth at 12 CFR 337.6.

    A "deposit broker" is one who places deposits or facilitates the placement of deposits. Any third party who delivers funds for deposit to a bank is a deposit broker unless expressly exempted from the rule (such as trustees or employee plan administrators). Generally, any company which markets or recommends a bank for deposits in exchange for volume-based fees will be deemed to be a facilitator. The FAQs make it clear that an insurance agent, lawyer, or accountant can be a deposit broker if he or she receives percentage-based, rather than flat fee, compensation. Similarly, a marketing company or non-profit affinity group will be deemed a deposit broker if compensated for referrals by volume.

    The FAQs confirm the FDIC's 2009 position that a bank "network," in which multiple banks agree to each retain up to $250,000 of a large deposit, is a "deposit broker." A listing service, on the other hand, will not be deemed a deposit broker if it is paid only a flat subscription fee, the service does not steer depositors, and the service does not facilitate the physical placement of deposits.

    The topic of most interest may be the discussion of prepaid card distributors. The FDIC makes it clear that most general purpose prepaid card programs which result in funds being placed in a bank's custodial account will be subject to the brokered deposit rules.

    The brokered deposit rules prevent an undercapitalized bank from accepting, renewing, or rolling over a brokered deposit. In this most recent FAQ, the FDIC confirms its view that the "overuse of brokered deposits" by problem institutions contributed to the most recent rounds of bank failures, a premise confirmed by its 2011 Core and Brokered Deposit Study.