1) THE BANKING LAW JOURNAL
An A.S. Pratt® PUBLICATION
FEBRUARY 2016
EDITOR’S NOTE: CORRESPONDENT BANKING
Steven A. Meyerowitz
VOLUME 133 NUMBER 2
THE PERILS AND PROMISE OF CORRESPONDENT BANKING
Heath P. Tarbert and Liangshun Qian
CHANGES NEEDED TO PROTECT THE BANKING AND
FINANCIAL SERVICES SECTOR WHEN DEALING WITH THE
MEDICAL MARIJUANA INDUSTRY—PART I
Moises Gali-Velazquez
RECOGNITION OF FOREIGN COUNTRY MONEY JUDGMENTS
CONNECTED TO CRIMINAL PROCEEDINGS OR CONSTITUTING
“PENAL JUDGMENTS”
Oluwaseun O. Ajayi
FDIC UPDATES BROKERED DEPOSITS RESOURCES
Clifford S. Stanford and Colin C. Richard
FEBRUARY 2016
C4815_16-2_x.indd 1
1/20/2016 3:04:15 PM
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3) Editor-in-Chief & Board of Editors
EDITOR-IN-CHIEF
Steven A. Meyerowitz
President, Meyerowitz Communications Inc.
BOARD OF EDITORS
Barkley Clark
Partner, Stinson Leonard Street
LLP
Jonathan R. Macey
Professor of Law
Yale Law School
Stephen B. Weissman
Partner, Rivkin Radler LLP
John F. Dolan
Professor of Law
Wayne State Univ. Law School
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Partner, Stroock & Stroock &
Lavan LLP
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LLP
Regional Banking Outlook
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LLC
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LLP
Sarah L. Reid
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Warren LLP
Recapitalizations
Christopher J. Zinski
Partner, Schiff Hardin LLP
Satish M. Kini
Partner, Debevoise & Plimpton
LLP
David Richardson
Partner, Dorsey & Whitney
Banking Briefs
Terence G. Banich
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& Towbin LLC
Douglas Landy
Partner, Milbank, Tweed,
Hadley & McCloy LLP
Heath P. Tarbert
Partner, Allen & Overy LLP
Intellectual Property
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Paul L. Lee
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Plimpton LLP
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5) THE BANKING LAW JOURNAL
FDIC Updates Brokered Deposits Resources
By Clifford S. Stanford and Colin C. Richard*
The Federal Deposit Insurance Corporation has published a new Financial
Institution Letter that adds important clariï¬cations and additional
explanations to the FDIC’s January 2015 brokered deposits resources. The
authors of this article explain the revised documents.
On November 13, 2015, the Federal Deposit Insurance Corporation
published Financial Institution Letter (“FIL”) FIL-51-2015 to update an
introductory letter and a frequently asked questions document (“FAQs”) on
brokered deposits, which had been issued through FIL-2-2015 on January 5,
2015. In the press release accompanying the update, the FDIC noted that
“[t]he agency said in January it would provide updates to the FAQs as
necessary” and that it “is updating the document in response to further
inquiries and comments.” The introductory letter was revised to note that the
FAQs will be updated “annually, as needed.”
BACKGROUND
The FDIC is charged with making the determination of when deposits at any
insured depository institution, regardless of its primary regulator, are considered
to be “brokered deposits.” This distinction is important for all institutions
because it can affect deposit insurance assessments. Further, only wellcapitalized banks, as deï¬ned by the prompt corrective action (“PCA”)
regulations issued by the bank’s federal bank regulator, may solicit and accept
brokered deposits without restriction.1 For all banks, brokered deposits have to
be reported on call reports, and over-reliance on brokered deposits can be
perceived as a safety and soundness concern by the regulators, regardless of
whether the bank is well-capitalized.
The FDIC regulations deï¬ne “brokered deposits” as any deposit that is
“obtained, directly or indirectly, from or through the mediation or assistance of
*
Clifford S. Stanford, a partner at Alston & Bird LLP and chair of the ï¬rm’s Bank Regulatory
Group, advises U.S. and foreign banks and non-bank ï¬nancial services companies on regulatory
concerns affecting the banking, ï¬nancial services, and payments industries. Colin C. Richard is
a senior associate in the ï¬rm’s Financial Services & Products Group, where his practice focuses
on banking regulation and payment systems. The authors may be reached at
cliff.stanford@alston.com and colin.richard@alston.com, respectively.
1
The prompt corrective action provisions require federal bank agencies to “tak[e] prompt
corrective action” for the purpose of “resolv[ing] the problems of insured depository institutions
at the least possible long-term loss to the Deposit Insurance Fund.” See 12 U.S.C. § 1831o.
98
6) FDIC UPDATES BROKERED DEPOSITS RESOURCES
a deposit broker.”2 The term “deposit broker” is deï¬ned as:
(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.3
Beyond the statute and regulations, the FDIC has generally only issued
one-off advisory opinions to help banks and others understand what constitutes
a brokered deposit. The FDIC has held to a broad interpretation of what
constitutes brokered deposits, and advisory opinions have been distinguished
on factual grounds. Additionally, the FDIC published a July 2011 Study on
Core Deposits and Brokered Deposits, as required by Section 1506 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act. The FDIC
issued the January 2015 introductory letter and FAQs in an effort to “promote
consistency by insured depository institutions in identifying, accepting, and
reporting brokered deposits.” The recent revisions are intended to clarify several
of the explanations provided in January and add some additional information.
SUMMARY OF KEY POINTS
The revisions appear to be intended to achieve two primary objectives: (1) to
emphasize that the FAQs are not new “guidance,” but rather just a summary of
the existing statute, regulation, advisory opinions and the Study; and (2) to
provide clariï¬cation or explanation of certain issues contained in the January
2015 FAQs.
First, revisions made throughout the introductory letter and the FAQs appear
intended to emphasize that the document should not be regarded as new
guidance, but rather as a summary of the existing FDIC guidance. The January
2015 version was titled “Guidance on Identifying, Accepting, and Reporting
Brokered Deposits,” whereas the title to both the introductory letter and the
November 2015 FAQs were revised to remove the word “guidance”; similar
revisions were made to the text of the letter. A new statement was added to the
introductory letter that references “the existence of the statute, regulations,
advisory opinions, and the Study,” and an existing reference in the letter to the
2
12 C.F.R. § 337.6(a)(2).
3
12 C.F.R. § 337.6(a)(5)(i).
99
7) THE BANKING LAW JOURNAL
January 2015 version as “guidance” was replaced instead with a description of
the document as “a plain language summary of previously issued guidance that
is conveniently located in one place.” Citations to the statute, regulations,
advisory opinions and Study were added throughout the November 2015
version as well.
Second, the November 2015 version includes substantive revisions that
clarify statements in the January 2015 version (e.g., the responses to questions
B6, E1, E3, E9 (was E8 in January 2015 version) and F5 have been revised) or
add new explanations (e.g., questions B7, E4 and E12 and corresponding
responses have been added).
•
B6. Are insurance agents, lawyers, or accountants that refer clients to a
bank considered to be deposit brokers? The FDIC changed the
response from “Yes” to “It depends,” and added an explanatory
paragraph.
•
B7. What is an example of when the deposits in a programmatic
arrangement to refer depositors are not brokered deposits? The FDIC
added a new question B7 and response to further clarify the revised
response to B6. The response to B7 provides an example of a
programmatic arrangement that would be deemed deposit brokering
under the revised response to B6.
•
E1. What are the exceptions to the deï¬nition of deposit broker? The
response to question E1 was revised to clarify that advisory opinions do
not provide distinct exceptions to the deï¬nition of deposit broker, but
rather the advisory opinions apply the statutory exceptions.
•
E3. In regard to the exception for an “employee of an insured
depository institution, with respect to funds placed with the employing
depository institution,” does the exception apply to a contractor or a
dual employee (i.e., a person employed jointly by an insured depository
institution and the institution’s parent or afï¬liate)? The reference to
“afï¬liate” in the question replaced a reference to “subsidiary” in the
January 2015 version. The response was clariï¬ed to emphasize that the
exception is established in the statute.
•
E4. Do situations exist when contractors and dual employees are not
considered to be deposit brokers? The FDIC added a new question E4
and response to further clarify the response to E3 and provide examples
of when a dual employee would and would not be considered a deposit
broker.
•
E9 (was E8 in January 2015 version). Does the primary purpose
100
8) FDIC UPDATES BROKERED DEPOSITS RESOURCES
exception apply to companies that sell or distribute general purpose
prepaid cards? The response was revised to recognize that the card
company or other third party (rather than speciï¬cally a “retail store”)
may place funds into custodial accounts. The statement that the card
company or third party was acting “as agent for the cardholders” was
removed. The FDIC further added that “[t]he general purpose prepaid
card and the deposit account are inseparable, in that the card is a device
that provides access to the funds in the underlying deposit account.
Because of this relationship, prepaid card companies are not covered by
the primary purpose exception.”
•
E12. How does FDIC treat federal or state agency funds disbursed to
beneï¬ciaries of government programs through debit cards or prepaid
cards? The FDIC added a new question E12 and response “based on
several oral inquiries received in 2015 regarding federal and state
beneï¬ts delivered via debit cards and prepaid cards.” The response
provides a description of the card program structures and addresses
when the primary purpose exception might apply.
•
F5. If an insured depository institution ceases to be well capitalized for
PCA purposes, how should an institution treat brokered deposit
accounts that are not time deposits (such as demand deposit accounts)?
Both the question and the response were revised. The question had
previously asked, “If an insured depository institution ceases to be well
capitalized, must the institution immediately close brokered deposit
accounts that never mature or renew (such as an interest checking or
savings account)?” The question was revised to remove the presumption
that certain accounts must be closed and to clarify that the term “well
capitalized” is as deï¬ned for PCA purposes. The response had
previously stated that institutions that cease to be well capitalized must
close such accounts; the response has been revised to instead state that
institutions should “establish an appropriate supervisory plan” with
their primary federal regulator. Additionally, the response now notes
that adequately capitalized institutions may request a waiver, and
accounts at undercapitalized institutions will be considered on a
case-by-case basis.
An additional revision to the introductory letter clariï¬es that brokered
deposit determinations are “always” viewed by the FDIC on a “case-by-case
basis,” and that “[i]f an institution was unaware of brokered deposit treatment
until the FAQs were released, the FDIC would generally not seek reï¬ling of past
Call Reports, although an insured depository institution’s accounting and
ï¬nancial reporting personnel might make their own recommendations.”
101
9) THE BANKING LAW JOURNAL
CONCLUSION
The new Financial Institution Letter adds important clariï¬cations and
additional explanations to the FDIC’s January 2015 brokered deposits resources. The revised documents should help to provide clarity on when deposits
are considered brokered. This is especially important as the FDIC has made
clear that, despite criticism of its distinctions between core and brokered
deposits, the treatment of brokered deposits is unlikely to change in the near
future.
102