What is a brokered deposit?
Brokered deposit means any deposit that is obtained, directly or indirectly, from or through the mediation or assistance of a deposit broker. The term deposit broker means (1) 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 (2) 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.
Can well capitalized FDIC regulated institutions accept brokered deposits?
Yes. Well-capitalized institutions may accept brokered deposits, subject to the conditions described below. An institution is also required to report the volume of brokered deposits being held on their quarterly Call Report.
Can undercapitalized FDIC regulated institution accept brokered deposits?
No. An undercapitalized insured depository institution may not accept, renew, or roll over any brokered deposit. The Corporation may, on a case-by-case basis and upon application by insured depository institution which is adequately capitalized (but not well capitalized) waive the applicability of subsection (a) upon a finding that the acceptance of such deposits does not constitute an unsafe or unsound practice with respect to such institution.
Is there a limit to how much brokered deposits a FDIC regulated institution can accept? If yes, how much?
There is no preset dollar limit for brokered deposits. However, the acceptance of brokered deposits by well capitalized institutions is subject to the same considerations and concerns applicable to any other type of special funding. These concerns relate to volume, availability, cost, volatility, and maturities and how the use of such special funding fits into the institution's overall liability and liquidity management plans. There should be no particular stigma attached to the acceptance of brokered deposit per se and the proper use of such deposits should not be discouraged.
Are funds that are attracted by FDIC regulated institutions that use rate services that charge a subscription fee considered brokered deposits?
When determining if a listing service is a deposit broker under section 337.6 of the FDIC rules and regulations, "brokered deposits" do not include those deposits obtained by listing a service that meets the following criteria:
- The person or entity providing the listing service is compensated solely by means of subscription fees (i.e., the fees paid by subscribers as payment for their opportunity to see the rates gathered by the listing service) and/or listing fees (i.e., the fees paid by depository institutions as payment for their opportunity to list or "post" their rates). The listing service does not require a depository institution to pay for other services offered by the listing service or its affiliates as a condition precedent to being listed.
- The fees paid by depository institutions are flat fees: they are not calculated based on the number or dollar amount of deposits accepted by the depository institution as a result of the listing of the depository institution's rates.
- In exchange for fees, the listing service performs no service except the gathering and transmission of information concerning the availability of deposits. This information may include an insured depository institution's name, address (including e-mail address), telephone number and interest rates. Except for providing this information, the listing service does not serve as a liaison between depositors and depository institution. For example, the listing service does not pass information about a depositor to a depository institution.
- The listing service is not involved in placing deposits or confirming the placement of deposits. Any funds to be invested in deposit accounts are remitted directly by the depositor to the insured depository institution and not, directly or indirectly, by or through the listing service.
Deposits placed by broker are insured as fiduciary accounts, under 12 C.F.R. 330.7. Those rules state that:
When the broker is placing funds in the name of the brokerage firm as agent for one or more clients, and all information on the account passes through the broker, these accounts can be insured as to each client ONLY if the broker meets the recordkeeping requirements of the insurance regulations. Those requirements are:
- The title of the account should reflect that the funds are being held in a fiduciary capacity. "ABC Investments as agent for others" or "ABC Investments Client investment account" would be two examples of account titles that would meet this requirement.
- The identities of the principles (clients) and their ownership interest must be ascertainable either from the records of the institution or, more usually, from the records of the accountholder (the broker).
In the event of a closing, the FDIC would make payment to the broker, since generally the only name on the account records would be that of the broker. Prior to receiving payment beyond the $100,000 minimum, the broker would need to provide us with the information described above. The terms under which the broker will transfer this payment to their clients or simply reinvest the funds in another institution would be set forth in the CD contract.