We recommend that the bank consult with an attorney to determine the structure of its relationship with the company, either as a deposit broker relationship or as a limited marketing relationship.

Deposit Broker Relationship

We believe that the arrangement we discussed would be considered a deposit broker relationship. A “brokered deposit” includes any “deposit that is obtained, directly or indirectly, from or through the mediation or assistance of a deposit broker.” 12 CFR 337.6(a)(2). Any company (or individual) that places deposits or facilitates deposits at your bank is considered a “deposit broker,” provided that none of the exceptions to the definition apply. 12 CFR 337.6(a)(5)(i)(A).

We do not believe that the company would fall into the exception for an “agent or nominee whose primary purpose is not the placement of funds with depository institutions.” The FDIC has interpreted that exception narrowly, so that it applies only to “an agent who places funds into a depository institution for a substantial purpose” other than placing or facilitating the deposit. FDIC Advisory Opinion 05-02 (February 3, 2005). [The FDIC has informed the IBA that it has removed all of its advisory opinions from its website due to a high risk of staleness. We have provided links to archived versions of the advisory opinions for your convenience. If you have a question about an advisory opinion, the FDIC recommends that you contact your FDIC Field Office, which you can find by clicking here.]

If you go forward with a deposit broker relationship, the deposit broker regulation that you identified (12 CFR 337.6) sets up a three-tiered system of regulation depending on your institution’s status as “well capitalized,” “adequately capitalized,” or “under capitalized” (or worse). (The categories are defined in 12 CFR 208.43.) Even if your institution is currently well capitalized, you would want to monitor and have a plan in place in case the institution becomes adequately capitalized at any time.

1. “Well capitalized” institutions “may solicit and accept, renew or roll over any brokered deposit without restriction.” 12 CFR 337.6(b)(1).

1. “Adequately capitalized” institutions must receive a waiver from the FDIC before they “accept, renew, or roll over any brokered deposit.” Even with a waiver, the yields you may pay on could not exceed by 75 basis points either the yield paid on comparable deposits in your market or the average national yield (available here). 12 CFR 337.6(b)(2).

1. “Undercapitalized” institutions “may not accept, renew or roll over any brokered deposit.” 12 CFR 337.6(b)(2).

The FRB Examination Manual (.pdf) explains the rules, risks, and monitoring requirements for brokered deposits.

Marketing Relationship

We cannot advise as to whether a joint marketing agreement (under which the company does not place or facilitate deposits) would be appropriate for your institution. The FDIC has several opinion letters on this subject that we think you will find helpful.

In an opinion letter, the FDIC concluded that a bank’s marketing arrangements with non-profit “affinity groups” were not broker deposit relationships. FDIC Advisory Opinion 93-30 (June 15, 1993). The FDIC viewed the affinity groups’ marketing activities as “passive and indirect” for a number of reasons:

(a) the Affinity Groups were non-financial institutions, and the vast majority were non-profit organizations;

(b) none of the Affinity Groups directly marketed the deposit products for the bank;

(c) the members who decided to deposit with the bank did so directly with the bank;

(d) the affinity groups had exclusive relationships with the bank and did not endorse other institutions’ deposit products;

(e) the royalties paid were a small fraction of the market rates paid normally paid to deposit brokers;

(f) the accounts had high retention rates (80–85% for money market accounts and 60–74% for certificates of deposit), and the bank treated the accounts as core deposits; and

(g) the affinity groups did not know which of their members made deposits and did not keep any records of the amounts, rates, or maturities of the deposits.  

In other circumstances, the FDIC concluded that a bank’s marketing relationships with affinity groups did create deposit broker relationships. While the affinity groups marketed the bank’s deposit products in the approved methods listed above, they went beyond those factors by placing bank posters and brochure racks in their offices and including information and materials on the bank’s deposit products in new member packets. FDIC Advisory Opinion 93-71 (October 1, 1993). These FDIC opinions make clear that the determination of whether a marketing relationship crosses into deposit broker territory depends on the specifics of each marketing agreement. Therefore, we would recommend that you work with bank counsel to limit the company’s marketing activities to those activities that you conclude would not create a deposit broker relationship.