The FDIC has issued new guidance in the form of answers to frequently asked questions (FAQs) on identifying, accepting and reporting brokered deposits. The FAQs were released with the FDIC's Financial Institutions Letter no. FIL-2-2015 on January 5, and expands on guidance for identifying and accepting brokered deposits provided in certain published advisory opinions and the FDIC's Study on Core Deposits and Brokered Depositsissued in July 2011. The FAQs acknowledge that the definition of a "deposit broker," on which the identification of brokered deposits is dependent, is very broad. According to the FAQs, a deposit broker is any person, company or organization engaged in placing deposits belonging to others, or facilitating the placement of deposits belonging to others, at an insured depository institution, subject to certain exceptions. As a result, according to the FAQs, a brokered deposit may be "any deposit accepted by an insured depository institution from or through a third party, such as a person or company or organization other than the owner of the deposit." As a result of the FDIC's broad interpretation of the term "facilitating the placement of deposits", a third party could be considered a deposit broker even when it does not open bank accounts on behalf of depositors or directly place funds into bank accounts, and even if it receives no fees or other direct compensation from the depository institution where the funds are placed, according to the FAQs.
Nutter Notes: Banks must distinguish brokered deposits from other deposits in order to comply with Section 29 of the Federal Deposit Insurance Act (FDI Act), and to accurately report brokered deposits in their Call Reports. Under Section 29 of the FDI Act and its implementing regulations, a bank is prohibited from accepting deposits by or through a deposit broker unless the institution is well capitalized. The FDIC may waive this prohibition if the bank is adequately capitalized, but not if the institution is undercapitalized. Section 29 and its implementing regulations also impose restrictions on the interest rates that a bank may pay on brokered deposits if the institution is not well capitalized. Since any deposit accepted by a bank through a deposit broker qualifies as a brokered deposit, identifying whether a third party qualifies as a deposit broker is key to compliance with Section 29 and its implementing regulations and accurate reporting on a bank's Call Report. The payment of a fee by a bank to a third party for placing a deposit is only one factor used by the FDIC in determining whether a particular party is a deposit broker, and the absence of direct compensation from the bank for the deposit placement is not determinative. Other factors according to the FAQs include the nature of any compensation to the third party (for example, whether the amount is connected to the amount of deposits placed), the purpose of the compensation (whether it is intended to reward the third party for placing deposits as opposed to compensation for providing some other service), and the degree of involvement by the third party in placing the deposits.