Bank Fintech Partnerships and Brokered Deposits: FDIC Modernizes Brokered Deposits Rule

Summary

This practice note addresses the "primary purpose exception" under Section 29 of the Federal Deposit Insurance Act (FDI Act) and the implementing regulations of the Federal Deposit Insurance Corporation (FDIC) at 12 C.F.R. § 337.6 referred to as the brokered deposits rule. Under Section 29 of the FDI Act, an insured depository institution (IDI) that is not well capitalized is restricted in its ability to accept deposits, directly or indirectly, from a deposit broker, and IDIs that are undercapitalized are prohibited from accepting any brokered deposits. The term "well capitalized" is defined under the FDI Act at 12 U.S.C. § 1831o(b)(1) as an IDI that significantly exceeds required minimum capital levels. The FDI Act and the FDIC's regulations include a definition for "deposit broker," with certain exceptions, but there is no defined term for "brokered deposit," therefore whether a deposit is a brokered deposit depends on whether the depositor is considered a deposit broker.