[Federal Register Volume 65, Number 53 (Friday, March 17, 2000)]
[Notices]
[Pages 14568-14572]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-6548]


-----------------------------------------------------------------------

FEDERAL DEPOSIT INSURANCE CORPORATION


General Counsel's Opinion No. 12, Engaged in the Business of 
Receiving Deposits Other Than Trust Funds

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of General Counsel's Opinion No. 12.

-----------------------------------------------------------------------

SUMMARY: Section 5 of the Federal Deposit Insurance Act provides that 
an applicant for deposit insurance must be ``engaged in the business of 
receiving deposits other than trust funds.'' The statute has included 
this phrase since 1950. During the past half century the FDIC has 
construed the phrase so as to accommodate the evolving nature of 
banking. The phrase has been interpreted on a case-by-case basis to 
encompass non-traditional banks that do not accept unlimited non-trust 
deposits from the general public.
    This long-standing interpretation is confirmed in this General 
Counsel's opinion. As set out in this opinion, the statutory 
requirement of being ``engaged in the business of receiving deposits 
other than trust funds'' is satisfied by the continuous maintenance of 
one or more non-trust deposits in the aggregate amount of $500,000.

FOR FURTHER INFORMATION CONTACT: Christopher L. Hencke, Counsel, Legal 
Division, (202) 898-8839, Federal Deposit Insurance Corporation, 550 
17th Street, N.W., Washington, D.C. 20429.

Text of General Counsel's Opinion

General Counsel's Opinion No. 12, Engaged in the Business of Receiving 
Deposits Other Than Trust Funds

    By William F. Kroener, III, General Counsel

Introduction

    The FDIC is authorized to approve or disapprove applications for 
federal deposit insurance. See 12 U.S.C. 1815. In determining whether 
to approve deposit insurance applications, the FDIC considers the seven 
factors set forth in the Federal Deposit Insurance Act (FDI Act). These 
factors are (1) the financial history and condition of the depository 
institution; (2) the adequacy of the institution's capital structure; 
(3) the future earnings prospects of the institution; (4) the general 
character and fitness of the management of the institution; (5) the 
risk presented by the institution to the Bank Insurance Fund or the 
Savings Association Insurance Fund; (6) the convenience and needs of 
the community to be served by the institution; and (7) whether the 
institution's corporate powers are consistent with the purposes of the 
FDI Act. 12 U.S.C. 1816. Also, the FDIC must determine as a threshold 
matter that an applicant is a ``depository institution which is engaged 
in the business of receiving deposits other than trust funds * * *.'' 
12 U.S.C. 1815(a)(1). Applicants that do not satisfy this threshold 
requirement are ineligible for deposit insurance.
    The FDIC applies the seven statutory factors in accordance with a 
``Statement of Policy on Applications for Deposit Insurance.'' See 63 
FR 44752 (August 20, 1998). The Statement of Policy discusses each of 
the factors at length; however, it does not address the threshold 
requirement that an applicant be ``engaged in the business of receiving 
deposits other than trust funds.''
    The threshold requirement for obtaining federal deposit insurance 
is set forth in section 5 of the FDI Act. See 12 U.S.C. 1815(a)(1). The 
language used by section 5 (``engaged in the business of receiving 
deposits other than trust funds'') also appears in section 8 and 
section 3 of the FDI Act. Under section 8, the FDIC is obligated to 
terminate the insured status of any depository institution ``not 
engaged in the business of receiving deposits, other than trust funds * 
* *.'' 12 U.S.C. 1818(p). In section 3, the term ``State bank'' is 
defined in such a way as to include only those State banking 
institutions ``engaged in the business of receiving deposits, other 
than trust funds * * * .'' 12 U.S.C. 1813(a)(2). This definition is 
significant because the term ``State bank'' appears in a number of 
sections of the FDI Act.
    For many years the FDIC has applied the statutory phrase on a case-
by-case basis. In applying the phrase, the FDIC has approved 
applications from institutions that did not intend to accept non-trust 
deposits from the general public. The FDIC has thus found that the 
acceptance of non-trust deposits from the public at large is not a 
necessary component of being ``engaged in the business of receiving 
[non-trust] deposits.'' The acceptance of non-trust deposits from a 
particular group (such as affiliates or trust customers) has been 
deemed by the FDIC to be sufficient.
    Prior to 1991 the Office of the Comptroller of the Currency (OCC) 
was responsible for determining whether new national banks would be 
``engaged in the business of receiving [non-trust] deposits.'' See 12 
U.S.C. 1814(b) (1980). The OCC similarly never adopted an 
interpretation that would require new national banks to accept non-
trust deposits from the general public.
    The long-standing practices of the FDIC and the OCC have not been 
sufficient to remove all questions as to the proper interpretation of 
being ``engaged in the business of receiving deposits other than trust 
funds.'' Questions have arisen from time to time about the application 
of the agencies' long-standing interpretation in the context of certain 
non-traditional depository institutions, such as credit card banks and 
trust companies.
    The purpose of this General Counsel's opinion is to clarify the 
Legal Division's interpretation of being ``engaged in the business of 
receiving deposits other than trust funds.'' Although the primary 
purpose of this opinion is to provide guidance to applicants for 
deposit insurance under section 5 of the FDI Act, the interpretation in 
this opinion also applies to section 8 (dealing with terminations) and 
section 3 (definition of ``State bank'').

[[Page 14569]]

Factors

    A number of factors must be considered in determining whether a 
depository institution should be regarded by the FDIC as ``engaged in 
the business of receiving deposits other than trust funds.'' These 
factors are (1) the statutory language; (2) the legislative history; 
(3) the practices of the FDIC and the OCC; (4) construction with other 
federal banking law; (5) the relevant case law; and (6) State banking 
statutes. Below, each of these factors is considered in interpreting 
the statutory phrase in the FDI Act.

Statutory Language

    Under section 5 of the FDI Act an applicant cannot obtain federal 
deposit insurance unless it is ``engaged in the business of receiving 
deposits other than trust funds.'' 12 U.S.C. 1815(a)(1). The Act does 
not define ``engaged in the business of receiving deposits other than 
trust funds''; however, it defines ``deposit'' and ``trust funds.'' See 
12 U.S.C. 1813(l); 12 U.S.C. 1813(p). The former term (``deposit'') 
includes but is not limited to the latter term (``trust funds''). See 
12 U.S.C. 1813(l)(2). The latter term is defined as funds held by an 
insured depository institution in a fiduciary capacity, including funds 
held as trustee, executor, administrator, guardian or agent. See 12 
U.S.C. 1813(p).
    An applicant cannot be insured by the FDIC if it receives ``trust 
funds'' alone. Under section 5, it also must be engaged in the business 
of receiving non-trust or non-fiduciary deposits. Generally, the FDI 
Act defines ``deposit'' as the unpaid balance of money or its 
equivalent received or held by a bank or savings association in the 
usual course of business and for which it has given or is obligated to 
give credit, either conditionally or unconditionally, to a commercial, 
checking, savings, time, or thrift account, or which is evidenced by 
its certificate of deposit, thrift certificate, investment certificate, 
certificate of indebtedness or other such certificate. See 12 U.S.C. 
1813(l)(1).
    The corollary to section 5 of the FDI Act is section 8. Under the 
latter section the FDIC must terminate the insured status of any 
depository institution ``not engaged in the business of receiving 
deposits, other than trust funds * * *.'' 12 U.S.C. 1818(p). 
Significantly, section 8 does not provide for any judicial 
determination of whether a depository institution is ``not engaged in 
the business of receiving [non-trust] deposits'' or judicial review of 
the FDIC's finding on this issue. Rather, section 8 provides that the 
FDIC's finding is ``conclusive.'' See id.
    The statutory phrase (``engaged in the business of receiving 
deposits, other than trust funds'') also appears in section 3. In that 
section, the term ``State bank'' is defined in such a way as to include 
only those State banking institutions ``engaged in the business of 
receiving deposits, other than trust funds * * *.'' 12 U.S.C. 
1813(a)(2).
    The statutory language is not unambiguous but requires 
interpretation by the FDIC in a number of respects. The statute does 
not specify whether a depository institution must hold a particular 
dollar amount of deposits in order to be ``engaged in the business of 
receiving [non-trust] deposits.'' Similarly, the statute does not 
specify whether a depository institution must accept a particular 
number of deposits within a particular period in order to be ``engaged 
in the business of receiving [non-trust] deposits.'' In addition, the 
statute does not specify whether a depository institution must accept 
non-trust deposits from the general public as opposed to accepting 
deposits from one or more members of a particular group (such as 
affiliates or trust customers). All these questions are unanswered and 
left to the FDIC for consideration and determination.
    One possible interpretation is that an insured depository 
institution must receive a continuing stream of non-trust deposits from 
the general public. The statute refers to the ``receiving'' of 
``deposits''; however, the statute also defines ``deposit'' in such a 
way as to equate ``receiving'' and ``holding.'' See 12 U.S.C. 
1813(l)(1). Moreover, the statute recognizes that a single deposit can 
be accepted or ``received'' many times through rollovers. See 12 U.S.C. 
1831f(b) (dealing with the acceptance of brokered deposits). Thus, the 
word ``receiving'' in the statute can be reconciled with the holding--
and periodic renewal or rollover--of a single certificate of deposit. 
Similarly, the plural word ``deposits'' is not inconsistent with the 
holding of a single deposit account because multiple deposits of funds 
can be made into a single account. A depositor might, for example, make 
a deposit of funds every month into the same account. The accrual of 
interest would represent an additional deposit into the same account. 
In the case of a certificate of deposit, the deposit would be replaced 
with a new deposit at maturity.
    The ambiguity of the statutory language results from the nature of 
the banking business. The opening of a deposit account does not 
represent a completed, isolated transaction. Rather, the opening of an 
account initiates a continuing business relationship with periodic 
withdrawals, deposits, rollovers and the accrual of interest. For this 
reason the statutory phrase (``engaged in the business of receiving 
deposits other than trust funds'') can be interpreted as encompassing 
the holding of one or few non-trust deposit accounts. Nothing in the 
statute specifies that an institution must receive a continuing stream 
of non-trust deposits from the general public.

Legislative History

    The phrase ``engaged in the business of receiving deposits'' can be 
traced to the Banking Act of 1935 (Pub. L. 74-305). In that Act the 
term ``State bank'' was defined as any bank, banking association, trust 
company, savings bank or other banking institution ``which is engaged 
in the business of receiving deposits.'' This qualification has been 
retained in the FDI Act, which also defines ``State bank'' in such a 
manner as to include only those institutions ``engaged in the business 
of receiving deposits, other than trust funds.'' 12 U.S.C. 1813(a)(2).
    The qualification relating to ``trust funds'' can be traced to the 
Banking Act of 1950 (Pub. L. 81-797). In the applicable House Report 
the purpose of this qualification is explained as follows: ``The term 
`State bank' is redefined to exclude banking institutions (certain 
trust companies) which do not receive deposits other than trust funds. 
There appears to be no necessity for such institutions being insured, 
as they place most of their uninvested funds on deposit in insured 
banks, retaining only nominal amounts, if any, in their own 
institutions.'' H.R. Rep. No. 2564, reprinted in 1950 U.S.C.C.A.N. 
3765, 3768. The term ``nominal amounts'' refers to uninvested trust 
funds held by the institution; it does not apply to non-trust deposits.
    The House Report indicates that a trust company cannot obtain 
insurance if it does not receive any non-trust deposits. It provides no 
guidance, however, as to whether a trust company can be insured if it 
accepts a small amount of non-trust deposits from a particular group 
(such as affiliates or trust customers) as opposed to a large amount or 
continuing stream of non-trust deposits from the general public. In 
essence, the House Report simply paraphrases the statutory language 
that an insured depository institution must be ``engaged in the 
business of receiving deposits other than trust funds.''
    A more useful reflection of Congressional intent may be found in 
legislation enacted after the FDIC and

[[Page 14570]]

the OCC had begun to interpret the statutory language. As discussed 
below, this subsequent legislation indicates that Congress neither 
modified nor indicated any disagreement with the broader construction 
given to the statutory phrase by the FDIC and the OCC.

Practices of the FDIC and the OCC

    The FDIC has acted on a case-by-case basis in determining whether 
depository institutions are ``engaged in the business of receiving 
deposits other than trust funds.'' The FDIC has never adopted a formal 
interpretation or set of guidelines. Under section 5 the FDIC for many 
years has approved applications for deposit insurance from non-
traditional depository institutions with few non-trust deposits. This 
practice began at least as early as 1969 with Bessemer Trust Company 
(Bessemer) located in Newark, New Jersey. Originally, Bessemer was an 
uninsured trust company that accepted no deposits except deposits 
related to its trust business. In 1969 Bessemer decided to offer non-
trust checking accounts to its trust customers. Bessemer did not offer 
non-trust deposit accounts to the general public. Notwithstanding this 
fact, the FDIC approved Bessemer's application for deposit insurance.
    In the 1970s the FDIC approved more applications from banks that 
intended to serve limited groups of customers. Again, the FDIC did not 
object to the fact that the banks did not intend to accept non-trust 
deposits from the general public. Some of these banks were ``Regulation 
Y'' trust companies under the Bank Holding Company Act (BHCA). See 12 
U.S.C. 1843(c); 12 CFR Part 225. The FDIC took the position that the 
statutory language (``engaged in the business of receiving [non-trust] 
deposits'') should be construed very broadly so as to promote public 
confidence in the greatest number of institutions.
    In the 1980s the FDIC staff reviewed the meaning of being ``engaged 
in the business of receiving [non-trust] deposits.'' The staff noted 
questions about the insurance of ``Regulation Y'' trust companies; the 
staff also noted questions as to whether the acceptance of funds from a 
single non-trust depositor would represent a sufficient level of non-
trust deposit-taking. Notwithstanding these continuing questions, the 
FDIC did not adopt a strict interpretation (or any formal 
interpretation) of the statutory phrase. Instead, the FDIC during this 
period continued to approve applications from depository institutions 
with very limited deposit-taking activities. For example, in 1984 the 
FDIC's Board of Directors approved an application from Bear Stearns 
Trust Company located in Trenton, New Jersey, even though the 
institution planned to accept non-trust deposits only from employees 
and affiliates. The institution did not intend to accept non-trust 
deposits from the general public.
    Because the FDIC has never adopted a formal interpretation or 
guidelines, the FDIC's interpretation has been subject to questions 
from time to time. In 1991 the FDIC contemplated whether the insured 
status of certain national trust companies should be terminated under 
section 8 of the FDI Act because the trust companies held few or no 
non-trust deposits. The issue was not resolved because the institutions 
terminated their insurance voluntarily.
    The practices of the OCC also are relevant. Prior to 1991 the OCC 
was responsible for determining whether national banks satisfied the 
threshold statutory requirements for obtaining deposit insurance. See 
12 U.S.C. 1814(b) (1980). In exercising this authority the OCC 
chartered a number of national banks with limited deposit-taking 
functions on the basis that such banks were ``engaged in the business 
of receiving deposits other than trust funds.''
    A significant statutory change occurred in 1991. At that time 
Congress provided that all applicants for deposit insurance must apply 
directly to the FDIC. See 12 U.S.C. 1815(a). Congress thus authorized 
the FDIC to make the requisite determination as to whether any 
applicant for deposit insurance would be ``engaged in the business of 
receiving deposits other than trust funds.'' In making this change, 
Congress made no objection to the practices of the FDIC and the OCC in 
extending insurance to institutions with limited deposit-taking 
activities. Thus, Congress accepted this practice. See Lorillard v. 
Pons, 434 U.S. 575 (1978). In addition, Congress accepted this practice 
through the enactment of certain provisions in the Bank Holding Company 
Act (discussed in the next section).
    Since 1991 the FDIC has approved applications for deposit insurance 
from more than 70 non-traditional depository institutions holding one 
or a very limited number of non-trust deposits. Some of these 
institutions have been credit card banks; others have been trust 
companies. Over the last two years the FDIC has received approximately 
20 applications from limited purpose federal savings associations 
operating as trust companies and chartered by the Office of Thrift 
Supervision (OTS). Approximately 15 of these applications already have 
been approved. In granting insurance to some of these institutions, the 
FDIC has required the holding of at least one non-trust deposit 
(generally owned by a parent or affiliate) in the amount of $500,000.
    The practices of the FDIC and the OCC support a broad, flexible 
interpretation of being ``engaged in the business of receiving deposits 
other than trust funds.'' The agencies have approved applications from 
institutions that did not intend to accept deposits from the general 
public. Neither agency has ever specifically adopted the position that 
an insured depository institution must accept non-trust deposits from 
the general public.

The Bank Holding Company Act

    The FDI Act also must be reconciled with the Bank Holding Company 
Act of 1956 (BHCA) as amended by the Competitive Equality Banking Act 
of 1987, Pub. L. No. 100-86 (CEBA). In the BHCA the definition of 
``bank'' includes banks insured by the FDIC. See 12 U.S.C. 1841(c)(1). 
A list of exceptions includes institutions functioning solely in a 
trust or fiduciary capacity if several conditions are satisfied. The 
conditions related to deposit-taking are: (1) All or substantially all 
of the deposits of the institution must be trust funds; (2) insured 
deposits of the institution must not be offered through an affiliate; 
and (3) the institution must not accept demand deposits or deposits 
that the depositor may withdraw by check or similar means. See 12 
U.S.C. 1841(c)(2)(D)(i)-(iii). The significant conditions are (1) and 
(2). The first condition provides that all or substantially all of the 
deposits of the institution must be trust funds; the second condition 
involves ``insured deposits.'' Thus, the statute contemplates that a 
trust company--functioning solely as a trust company and holding no 
deposits (or substantially no deposits) except trust deposits--could 
hold ``insured deposits.'' In other words, the BHCA contemplates that 
an institution could be insured by the FDIC even though the institution 
does not accept non-trust deposits from the general public.
    The BHCA is difficult to reconcile fully with the FDI Act, which 
mandates that all FDIC-insured institutions must be ``engaged in the 
business of receiving [non-trust] deposits.'' The appropriate way to 
reconcile the BHCA with the FDI Act is for the FDIC to construe the 
threshold requirement of being ``engaged in the business of receiving 
deposits other than trust funds'' in a flexible and broad way. The FDIC 
has done so by allowing depository

[[Page 14571]]

institutions to satisfy the statutory requirement by receiving very 
limited non-trust deposits.

Court Decisions

    The courts have offered few interpretations of being engaged in the 
specific ``business of receiving deposits other than trust funds.'' The 
leading case is Meriden Trust and Safe Deposit Company v. FDIC, 62 F.3d 
449 (2d Cir. 1995). In that case, a bank holding company acquired two 
State-chartered banks insured by the FDIC. One of these banks was 
Meriden Trust; the other was Central Bank. After making the 
acquisitions, the holding company transferred most of the assets and 
liabilities of Meriden Trust to Central Bank. Nothing was retained by 
Meriden Trust except the assets and liabilities relating to its trust 
business. Also, Meriden Trust held two non-trust deposits in the 
aggregate amount of $200,000. One of the non-trust deposits was owned 
by the holding company; the other was owned by Central Bank. In order 
to maintain the ability to function as a full-service bank, Meriden 
Trust did not seek to terminate its insurance from the FDIC.
    Later, Central Bank failed. Meriden Trust then informed the FDIC 
that it no longer considered itself an ``insured depository 
institution'' because it had stopped accepting non-trust deposits. By 
taking this position, Meriden Trust hoped to avoid liability under 
section 5(e) of the FDI Act. Section 5(e) provides that an ``insured 
depository institution'' shall be liable for any loss incurred by the 
FDIC in connection with the failure of a commonly controlled insured 
depository institution. See 12 U.S.C. 1815(e).
    The FDIC did not agree with Meriden Trust. In court, the issue was 
whether Meriden Trust was an ``insured depository institution.'' Under 
the FDI Act, the term ``insured depository institution'' includes any 
bank insured by the FDIC including a ``State bank.'' See 12 U.S.C. 
1813(c)(2). In turn, ``State bank'' includes any State-chartered bank 
or trust company ``engaged in the business of receiving deposits, other 
than trust funds.'' 12 U.S.C. 1813(a)(2)(A). Again, Meriden Trust 
argued that it was not ``engaged in the business of receiving deposits, 
other than trust funds'' because it had stopped accepting non-trust 
deposits from the general public.
    The position taken by Meriden Trust was rejected by the federal 
district court as well as the United States Court of Appeals for the 
Second Circuit. The Court of Appeals relied upon the fact that Meriden 
Trust held two non-trust deposits (in the aggregate amount of only 
$200,000). Also, the court relied upon the fact that Meriden Trust 
never obtained a termination of its status as an ``insured depository 
institution'' in the manner prescribed by the FDI Act. Under the Act, 
termination of this status requires the involvement or consent of the 
FDIC. See 12 U.S.C. 1818; 12 U.S.C. 1828(i)(3).
    Another noteworthy case is United States v. Jenkins, 943 F.2d 167 
(2d Cir.), cert. denied, 502 U.S. 1014 (1991). In that case the court 
found that the defendant had violated the Glass-Steagall Act by 
engaging ``in the business of receiving deposits'' without proper State 
or federal authorization. See 12 U.S.C. 378(a). The case is noteworthy 
because the defendant was convicted for receiving a single deposit in 
the amount of only $150,000.
    A recent case is Heaton v. Monogram Credit Card Bank of Georgia, 
Civil Action No. 98-1823 (E.D. La.). In that case credit card holders 
in Louisiana have brought suit against an insured State-chartered 
credit card bank in Georgia. The cardholders have charged the bank with 
violating Louisiana restrictions on fees and interest rates. In its 
defense the Georgia bank has cited section 27 of the FDI Act. Under 
that section, a ``State bank'' may avoid certain State restrictions on 
fees and interest rates when operating outside its State of 
incorporation. See 12 U.S.C. 1831d. The key issue in the litigation is 
whether the Georgia bank--holding a fixed and limited number of 
deposits--qualifies as a ``State bank'' entitled to protection under 
section 27.
    The Georgia bank in Heaton holds only two deposits and both are 
from affiliates. As a non-party in the litigation, the FDIC informed 
the court that it deemed the bank to be a ``State bank'' under the FDI 
Act despite the bank's limited number of deposits. The court disagreed. 
On November 22, 1999, the federal district court ruled on a preliminary 
jurisdictional motion that the Georgia bank was not a ``State bank'' 
because it was not ``engaged in the business of receiving deposits, 
other than trust funds.'' The Georgia bank appealed the court's ruling 
to the United States Court of Appeals for the Fifth Circuit. The case 
is pending before the Court of Appeals.
    Meriden and Jenkins are more persuasive than the district court's 
decision in Heaton. As discussed above, the Court of Appeals in Meriden 
found that a trust company was ``engaged in the business of receiving 
[non-trust] deposits'' even though it held only two non-trust deposits 
in the aggregate amount of only $200,000. In part the court relied upon 
the fact that the insured status of the trust company never was 
terminated in the manner prescribed by the FDI Act. This reliance was 
appropriate in light of the FDIC's ``conclusive'' authority under 
section 8 to determine whether an insured depository institution is 
``not engaged in the business of receiving deposits, other than trust 
funds.'' 12 U.S.C. 1818(p).
    In contrast, the Heaton court disregarded the fact that the FDIC 
has never terminated the insured status of the Georgia credit card 
bank. The implication of the Heaton decision is that a bank may remain 
insured by the FDIC under the FDI Act even though it ceases to exist as 
a ``State bank'' under the FDI Act. This interpretation is irrational. 
It would lead to the existence of State depository institutions that 
are insured by the FDIC but unregulated by every section of the FDI Act 
that regulates ``State banks.'' See, e.g., 12 U.S.C. 1831a (regulating 
the activities of insured ``State banks'').
    Meriden and Jenkins support a broad interpretation of being 
``engaged in the business of receiving deposits other than trust 
funds.'' These cases involved and are directly relevant to banks. There 
are cases outside the banking field that suggest that being ``engaged 
in a business'' implies regularity of participation or involvement in 
multiple transactions. See, e.g., McCoach v. Minehill & Schuylkill 
Haven Railroad Co., 228 U.S. 295, 302 (1913); United States v. Scavo, 
593 F.2d 837, 843 (8th Cir. 1979); United States v. Tarr, 589 F.2d 55, 
59 (1st Cir. 1978). It is inappropriate to apply such cases (rather 
than Meriden and Jenkins) in the banking business because, as 
previously explained, the opening of a single deposit account initiates 
a continuing business relationship with periodic withdrawals, deposits, 
rollovers and the accrual of interest.

State Banking Statutes

    Some State banking statutes impose significant restrictions on the 
ability of some depository institutions to accept non-trust deposits. 
For example, a Florida statute provides that a ``credit card bank'' (1) 
may not accept deposits at multiple locations; (2) may not accept 
demand deposits; and (3) may not accept savings or time deposits of 
less than $100,000. At the same time, the statute provides that the 
bank must obtain insurance from the FDIC. See Fla. Stat. 658.995(3). 
Thus, the statute contemplates that a bank may be ``engaged in the 
business of receiving [non-trust] deposits'' (a necessary condition for 
obtaining insurance from the FDIC) even though the bank may not

[[Page 14572]]

accept deposits on an unrestricted basis from the general public. 
Indeed, the statute contemplates that a bank may be insured by the FDIC 
even though the bank's business consists solely of making credit card 
loans and conducting such activities as may be incidental to the making 
of credit card loans. See Fla. Stat. 658.995(3)(f).
    Similarly, a Virginia statute provides that a general business 
corporation may acquire the voting shares of a ``credit card bank'' 
only if certain conditions are satisfied. See Va. Code 6.1-392.1.A. 
These conditions comprise the definition of a ``credit card bank.'' See 
Va. Code 6.1-391. These conditions include the following: (1) The bank 
may not accept demand deposits; and (2) the bank may not accept savings 
or time deposits of less than $100,000. Indeed, the statute provides 
that a ``credit card bank'' may accept savings or time deposits (in 
amounts in excess of $100,000) only from affiliates of the bank having 
their principal place of business outside the State. See Va. Code 6.1-
392.1.A.3-4. In other words, the Virginia statute prohibits the 
acceptance of any deposits from the general public. At the same time, 
the statute requires the deposits of the bank to be federally insured. 
See Va. Code 6.1-392.1.A.4.
    A third example is the Georgia Credit Card Bank Act. Prior to a 
recent amendment, this statute provided that a credit card bank could 
take deposits only from affiliated parties. In other words, the Georgia 
statute was similar to the current Virginia statute in prohibiting a 
credit card bank from accepting deposits from the general public. See 
Ga. Code Ann. 7-5-3(7) (1997). At the same time, Georgia law required 
such banks to be ``authorized to engage in the business of receiving 
deposits.'' Ga. Code Ann. 7-1-4(7) (1997). Thus, Georgia law 
(consistent with the current Virginia law) was based on the premise 
that the receipt of deposits from the general public is not a necessary 
element of being ``engaged in the business of receiving deposits.'' The 
receipt of deposits from affiliated parties was deemed sufficient. 
(Under the current Georgia law, a credit card bank may accept savings 
or time deposits in amounts of $100,000 or more from anyone. See Ga. 
Code 7-5-3(7).)
    These State laws contemplate a broad and flexible interpretation of 
being ``engaged in the business of receiving deposits other than trust 
funds.'' Of course, the FDIC in applying the FDI Act cannot be 
controlled by State law but the FDIC should be cognizant of the 
evolving nature of banking as reflected by State laws.

Confirmation of the FDIC'S Interpretation

    For more than 30 years the FDIC has approved applications for 
deposit insurance from non-traditional depository institutions. During 
this period the FDIC has not required the acceptance of deposits from 
the general public in determining that applicants are ``engaged in the 
business of receiving deposits other than trust funds.'' On the 
contrary, the FDIC has approved applications from many institutions 
(such as trust companies and credit card banks) that did not intend to 
solicit deposits from the general public. Indeed, some of these 
institutions planned to accept no more than one non-trust deposit from 
a parent or affiliate.
    The FDIC's consistent practice represents an interpretation of 
being ``engaged in the business of receiving deposits other than trust 
funds.'' This long-standing broad interpretation is consistent with the 
protective purposes of deposit insurance generally and is well within 
the FDIC's discretion in light of the ambiguity of the statutory 
phrase. The FDIC's long-standing interpretation also is supported by 
(1) the practices of the OCC; (2) the acceptance by Congress of the 
practices of the FDIC and the OCC; (3) the Bank Holding Company Act; 
(4) the relevant case law; and (5) State banking statutes. On the basis 
of the foregoing, I conclude that the statutory requirement of being 
``engaged in the business of receiving deposits other than trust 
funds'' is satisfied by the continuous maintenance of one or more non-
trust deposits in the aggregate amount of $500,000 (the amount 
specified in a number of recent applications).
    Some discussion is warranted regarding the most limited forms of 
being ``engaged in the business of receiving deposits other than trust 
funds.'' It could be argued that a difference exists between allowing 
depository institutions to decline non-trust deposits from the general 
public and allowing depository institutions to decline all non-trust 
deposits from all potential depositors with the exception of a single 
deposit from a parent or affiliate. Perhaps an argument also could be 
made that the minimum number of non-trust depositors or the minimum 
number of non-trust deposit accounts should be greater than one. The 
problem with this argument is that a single deposit account can be 
divided into portions. Moreover, if the FDIC required the existence of 
a particular number of depositors or the periodic acceptance of a 
particular number of non-trust deposits, institutions holding one 
deposit account would simply arrange for the prescribed number of 
depositors to hold the funds in the prescribed number of accounts. At 
periodic intervals, funds would be withdrawn and redeposited. The FDIC 
should not and need not interpret the minimum threshold requirement of 
the statute so as to require such stratagems.
    In summary, the Legal Division believes and the General Counsel is 
of the opinion that the FDIC may determine that a depository 
institution is ``engaged in the business of receiving deposits other 
than trust funds'' as required by section 5 of the FDI Act if the 
institution holds one or more non-trust deposits in the aggregate 
amount of $500,000. This interpretation is not intended to suggest that 
a depository institution will necessarily not be ``engaged in the 
business of receiving [non-trust] deposits'' if it holds such deposits 
in the aggregate amount of less than $500,000. Rather, the Legal 
Division is merely adopting the opinion that the amount of $500,000 is 
sufficient for purposes of section 5 as well as section 8 
(terminations) and section 3 (definition of ``State bank''). If an 
applicant for deposit insurance proposes to hold non-trust deposits in 
a lesser amount (based on projected deposit levels), the FDIC would 
need to determine in that particular case whether the applicant would 
be ``engaged in the business of receiving [non-trust] deposits.'' 
Similarly, under section 8 or section 3, the FDIC will determine on a 
case-by-case basis whether the holding of non-trust deposits in an 
amount less than $500,000 constitutes being ``engaged in the business 
of receiving [non-trust] deposits.''

Conclusion

    Section 5 of the FDI Act provides that an applicant for deposit 
insurance must be ``engaged in the business of receiving deposits other 
than trust funds.'' In the opinion of the General Counsel, on the basis 
of the foregoing, the holding by a depository institution of one or 
more non-trust deposits in the aggregate amount of $500,000 is 
sufficient to satisfy this threshold requirement for obtaining deposit 
insurance.

    By Order of the Board of Directors.

    Dated at Washington, D.C., this 9th day of March, 2000.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 00-6548 Filed 3-16-00; 8:45 am]
BILLING CODE 6714-01-P