FDIC Brokered Deposit Rule
-OrWhat Do You Mean That’s
a Brokered Deposit?
Texas Association of Bank Counsel
October 1-2, 2015
Annette L. Tripp
Background: What is a Brokered Deposit?
• Regulatory Definition:
– any deposit that is obtained, directly or indirectly, from or
through the mediation or assistance of a deposit broker.
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Background: What is a Deposit Broker?
• 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.
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Background: What is a Deposit Broker?
• 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.
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Background: What is a Deposit Broker?
• Any insured depository institution that is not wellcapitalized, and any employee of any such insured
depository institution, which engages, directly or
indirectly, in the solicitation of deposits by offering
rates of interest (with respect to such deposits) which
are significantly higher than the prevailing rates of
interest on deposits offered by other insured
depository institutions in such depository
institution's normal market area.
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Background: Exceptions
• Insured Depository Institution Exceptions
– An insured depository institution with respect to
funds placed at that institution
– An employee of an insured depository institution with
respect to funds placed at that institution
– A trust department of an insured depository
institution, if the trust has not been established for
the primary purpose of placing funds with insured
depository institutions
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Background: Exceptions
• Benefit Plan Exceptions
– The trustee of a pension or other employee benefit
plan, with respect to funds in the plan
– A person acting as a plan administrator or investment
advisor in connection with a pension plan or other
employee benefit plan provided that the person is
performing managerial functions for the plan
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Background: Exceptions
• Trustee and Agent Exceptions
– The trustee of a testamentary trust
– The trustee of an irrevocable trust provided the trust
(1) has not been established for the primary purpose
of placing funds with an insured depository institution
and (2) has not been created to facilitate a business
arrangement to use the proceeds of the account to
fund a prearranged loan
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Background: Exceptions
• Trustee and Agent Exceptions
– The trustee or custodian of a pension or profitsharing plan qualified under Title 26, Section 401(d)
or 403(a)
– An agent or nominee whose primary purpose is not
the placement of funds with the insured depository
institution
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Background: Exceptions
• Government Sponsored Program Exception
– An intermediary or agent of a U.S. government
department or agency for a government sponsored
minority or women-owned depository institution
deposit program
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The Present: New FAQ
• Guidance on Identifying, Accepting, and Reporting
Brokered Deposits Frequently Asked Questions
• “Updated” 12/24/2015
• Financial Institutions Letter FIL-2-2015
• Study on Core Deposits and Brokered Deposits
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The Present: New FAQ
• Reiterated former interpretations
• “Clarified” other situations that may be considered
brokered deposits
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The Present: New FAQ
• Placing Deposits
– A third party actually delivers the funds to an insured
depository institution
– Unless an exception applies, the deposits are
brokered deposits
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The Present: New FAQ
• Facilitating the placement of deposits
– Marketing in exchange for volume-based fees
• More than just advertising firms
– Non-profit affinity groups
– Product designers who receive volume-based fees
– Attorneys, insurance agents and accountants *
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The Present: New FAQ
– Individuals or groups that make a general endorsement
for a flat fee if the endorsement appears in the bank’s
promotional materials
» A general endorsement for a flat fee appearing in
materials that are not bank promotional materials does
not trigger brokered deposits according to the FAQ.
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The Present: New FAQ
• Listing Services
– Not a deposit broker if all of the following are true:
• Compensated solely by subscription fees and no
requirement to buy other services
• Flat (non-volumetric) fees
• No steering (some limited message transmission
between the bank and the depositor is permitted)
• No physical placement of deposits
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The Present: New FAQ
• Radio, Television, Internet Websites
– “Communications companies”
– Analysis is similar to the listing services analysis
– If the advertising platform is run in a neutral manner,
then the communications company is not a deposit
broker
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The Present: New FAQ
• Bank Networks
– Bank networks are brokered deposit arrangements,
and banks acting as agents for customers for
purposes of placing funds at other depository
institutions are deposit brokers.
– The result is the same if the banks are affiliated.
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The FAQ: Exceptions to the Exceptions
• Exception for depository institutions does not apply
to third-party deposits placed by affiliates
• Trust department exception depends on the primary
purpose of trust
• Exception for employees of depository institutions
does not apply to contractors or dual employees
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The FAQ: Exceptions to the Exceptions
• Qualifying Employees
– Employed exclusively by the bank
– Compensated primarily in the form of salary
– Do not share compensation with a deposit broker
– Office space or place of business is used exclusively
for the benefit of the bank that employs the
employee
– No blanket foreign country exception
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The FAQ: Exceptions to the Exceptions
• Primary Purpose Definition
– Promotion of a goal other than the placement of
deposits
– Not applicable when the goal of the third party is to
earn fees through the placement or facilitation of
deposits
– Does not matter that the fees generated are not
significant in relation to overall revenue
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The FAQ: Exceptions to the Exceptions
• Prepaid Cards
– Primary purpose exception generally does not apply
to companies that sell or distribute general purpose
prepaid cards where the cardholder funds are placed
into custodial accounts at financial institutions
• Includes retail store cards
• Treatment not clear if the funds are not deposited into
custodial accounts
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The FAQ: Exceptions to the Exceptions
• Multi-Purpose Debit or Similar Cards (College ID
Cards)
– Factors to be considered
• The stated primary purpose of the third party
marketing the cards
• Card features (reloadable, access to a permanent
allocated account in a depository institution)
• Compensation received by the third party in marketing
the card
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The FAQ: Exceptions to the Exceptions
• Example of qualifying prepaid cards
– Cards distributed as part of a corporate rebate
program where the corporation’s own funds are
deposited into the account at the bank and not
cardholder funds
– But—if a third party is involved in the placement of
the funds, then there is a deposit broker and
brokered deposits
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Developments Since The FAQ
• Referrals by Attorneys and Other Professionals
– Informal deposit referrals would not be considered
brokered deposits
– Formal, programmatic arrangements would trigger
identification as a deposit broker
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Why We Care
• Under the Brokered Deposit Rule
– Only well capitalized institutions can accept, renew or
rollover brokered deposits
– Adequately capitalized institutions may accept, renew
and rollover brokered deposits only upon receipt of a
waiver from the Federal Deposit Insurance
Corporation
– Undercapitalized institutions cannot accept, renew or
rollover brokered deposits
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Why We Care
• Under the Brokered Deposit Rule
– Any type of involvement by a third party will
disqualify a renewed account as a brokered deposit
• Renewal fee
• Holding of the account in the third party’s name
• Continued third party access to account information
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Why We Care
• Under the Brokered Deposit Rule
– If the institution becomes less than well capitalized, it
• Cannot accept brokered deposits (including renewals)
• Cannot keep a maturing CD beyond maturity
• Must close non-maturing or non-renewing accounts
(e.g., checking, savings, etc.) immediately - subject to
consultation with the applicable primary federal
regulator if closing could have a significant impact on
liquidity or bank operations
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Why We Care
• Under the Brokered Deposit Rule
– Brokered deposits held by insured institutions other
than well capitalized institutions are subject to
interest rate limitations on the deposits
• Currently 75 basis points above the “national rate” for
deposits of similar size and maturity
• Above market CDs generated before a capital change
are not reported as brokered deposits, but cannot be
renewed above the rate limit
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Why We Care
– Interest rates on non-maturing or non-renewing
accounts (e.g., checking, savings, etc.) must be
reduced below the rate limit immediately - subject to
consultation with the applicable primary federal
regulator if closing could have a significant impact on
liquidity or bank operations
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Why We Care
• Outside of the Brokered Deposit Rule
– Deposit and other agreement provisions
– Potential increased deposit assessments
– Call report reporting
– Additional scrutiny for safety and soundness (“overreliance” on brokered deposits)
– Bank Secrecy Act/Anti-Money Laundering compliance
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Waivers
• Determined on a case-by-case basis
• Evaluated for traditional safety and soundness
concerns
• Plans for reducing dependence on brokered deposits
• BSA/AML compliance history
• Ability to manage potential volatility of the deposits
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Waivers
• Contingency funding plans
• Liquidity monitoring programs
• Current business plan, including
– Planned expansions
– Planned growth
– Management’s plans to return the institution to well
capitalized
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Take-Aways
• The FAQ is intended as a living document
• It will be important to monitor developments
– New “brokered deposits”
– “Release” from brokered deposits
• Prepaid card treatment may require a legislative
solution
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Sources and Links
• Financial Institution Letter FIL-2-2015, Guidance on
Identifying, Accepting, and Reporting Brokered
Deposits (Updated 12/24/2014)
• Study on Core Deposits and Brokered Deposits
• 12 U.S.C. §1831f
• 12 C.F.R. §337.6
• https://www.fdic.gov/news/news/financial/2015/fil1
5002.html
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Thompson & Knight
Texas Association of Bank Counsel
October 1-2, 2015
Annette L. Tripp
Partner
Thompson & Knight LLP
333 Clay Street, Suite 3300
Houston, Texas 77002
713.653.8720
[email protected]
The preceding presentation is for information purposes only and is not intended
to provide legal advice.
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