On December 24, 2014, the FDIC released its latest statements on what they consider to be “brokered deposits.” In Guidance on Identifying, Accepting, and Reporting Brokered Deposits Frequently Asked Questions (the “FAQs”), the FDIC outlined their current views on what they will deem to be brokered deposits, formally stating positions that have been developing over the last few years but which had not previously been stated in writing. For many FDIC-insured depository institutions (collectively, “banks”), the FAQs might have little or no impact. For others, the impact could be significant.
Banks that have a large portfolio of brokered deposits know that they do, but these FAQs could expand the number of brokered deposits held by such banks. It therefore is important to review the FAQs carefully to ensure that your call reports are accurate. As discussed below, your volume of brokered deposits could even impact your FDIC insurance assessments.
There also may be those banks that believe they do not have any brokered deposits, except perhaps the reciprocal deposits obtained through CDARs, the Certificate of Deposit Registry Service. This belief might not be accurate, and might be based on interpretations of the “primary purpose” exception that the FDIC does not share. We recommend that every bank reconsider their brokered deposit holdings in light of the FAQs.
This article discusses the possible implications of having brokered deposits and the FDIC’s interpretation of what is or is not a brokered deposit as reflected in past FDIC Interpretive Letters and the FAQs.
The Brokered Deposit Rules and Consequences
Under Section 29 of the Federal Deposit Insurance Act (12 U.S.C. § 1831f) and its implementing regulation at 12 C.F.R. § 337.6, a “brokered deposit” is any deposit obtained, directly or indirectly, from or through the mediation or assistance of a deposit broker. A “deposit broker” includes 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. There are a number of regulatory exceptions to this definition, but the FDIC applies these exceptions very narrowly, as discussed below.