[Federal Register Volume 66, Number 76 (Thursday, April 19, 2001)]
[Proposed Rules]
[Pages 20102-20111]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-9712]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 303

RIN 3064-AC49


Being Engaged in the Business of Receiving Deposits Other Than 
Trust Funds

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking.

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SUMMARY: Under section 5 of the Federal Deposit Insurance Act, an 
applicant for deposit insurance must be ``engaged in the business of 
receiving deposits other than trust funds''. This requirement was 
interpreted in General Counsel Opinion No. 12, which was published by 
the FDIC in March of 2000.
    The FDIC is proposing to replace General Counsel Opinion No. 12 
with a regulation. The purpose of promulgating a regulation would be to 
clarify the requirement that an insured depository institution be 
``engaged in the business of receiving deposits other than trust 
funds''. Under the proposed regulation, this requirement would be 
satisfied by the continuous maintenance of one or more non-trust 
deposit accounts in the aggregate amount of $500,000.

DATE: Written comments must be received on or before July 18, 2001.

ADDRESSES: Send written comments to Robert E. Feldman, Executive 
Secretary, Attention: Comments/OES, Federal Deposit Insurance 
Corporation, 550 17th Street, NW, Washington, DC 20429. Comments may be 
hand-delivered to the guard station at the rear of the 550 17th Street 
Building (located on F Street), on business days between 7 a.m. and 5 
p.m. (facsimile number (202) 898-3838; Internet address: 
[email protected] mailto:[email protected]>). Comments may be posted on 
the FDIC internet site at http://www.fdic.gov/regulations/laws/federal/propose.html and may be inspected and photocopied in the FDIC Public 
Information Center, Room 100, 801 17th Street, NW, Washington, DC 
20429, between 9 a.m. and 4:30 p.m. on business days.

[[Page 20103]]


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

SUPPLEMENTARY INFORMATION:

I. The Statute

    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 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, under the FDI Act, 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 statutory 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).
    The statute is ambiguous. For example, it 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, it 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, it does not specify whether a 
depository institution must accept non-trust deposits from the general 
public as opposed to accepting deposits only from one or more members 
of a particular group (such as the institution's trust customers or 
employees or affiliates).
    One possible interpretation is that an insured depository 
institution must receive a continuing stream of non-trust deposits from 
the general public. This interpretation would be based upon the 
statute's use of the word ``receiving'' (suggesting repetition) and the 
plural word ``deposits''.
    Another possible interpretation is that an insured depository 
institution may hold--and periodically renew--a limited number of 
deposit accounts or even a single deposit account. This interpretation 
would be based upon the fact that the statute defines ``deposit'' in 
such a way as to equate ``receiving'' and ``holding.'' See 12 U.S.C. 
1813(l)(1). Also, the statute recognizes that a single deposit can be 
accepted or ``received'' many times through rollovers. See 12 U.S.C. 
1831f(b). Indeed, the periodic accrual of interest on a single deposit 
represents the ``receiving'' of multiple new ``deposits''. Although the 
depositor might withdraw the interest regularly (rather than allowing 
the interest to be added to the principal), the accrued interest 
nonetheless would be a ``deposit'' until such withdrawal. See 12 CFR 
330.3(i)(1) (for insurance purposes, a deposit consists of principal 
plus ascertainable interest as of the date of the depository 
institution's failure).
    The ambiguity of the statute 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. These deposits, 
rollovers and accruals represent the ``receiving'' of ``deposits''.
    In applying the statutory standard (``engaged in the business of 
receiving deposits other than trust funds''), the FDIC has approved 
applications from many institutions that did not intend to accept non-
trust deposits from the general public. Also, the FDIC has approved 
applications from institutions that only intended to hold one type of 
deposit account (e.g., certificates of deposit) or that did not intend 
to hold more than one or a few non-trust deposit accounts. The FDIC's 
long-standing practice of approving applications from such non-
traditional depository institutions has not been sufficient to remove 
uncertainty as to the meaning of being ``engaged in the business of 
receiving deposits other than trust funds.'' In order to clarify its 
interpretation of the law, the FDIC published General Counsel Opinion 
No. 12. This opinion is discussed in greater detail below.

II. General Counsel Opinion No. 12

    In March of 2000, the FDIC published General Counsel Opinion No. 
12. See 65 FR 14568 (March 17, 2000). General Counsel Opinion No. 12 is 
attached as an appendix. In that opinion, the FDIC's General Counsel 
stated that the statutory requirement of being ``engaged in the 
business of receiving deposits other than trust funds'' can be 
satisfied by the continuous maintenance of one or more non-trust 
deposit accounts in the aggregate amount of $500,000.
    General Counsel Opinion No. 12 is based upon a number of factors. 
First, the statute is ambiguous (as discussed above). Second, as 
discussed at length in General Counsel Opinion No. 12, the legislative 
history is inconclusive. See H.R. Rep. No. 2564, reprinted in 1950 
U.S.C.C.A.N. 3765, 3768. Third, the FDIC has approved applications from 
many non-traditional depository institutions that did not intend to 
maintain more than one or a very limited number of non-trust deposit 
accounts (as mentioned above). This practice began at least as early as 
1969 with Bessemer Trust Company (Bessemer) located in Newark, New 
Jersey. Bessemer offered checking accounts to its own trust customers 
but did not offer checking accounts or any other type of non-trust 
accounts to the general public. Despite this limitation on Bessemer's 
deposit-taking activities, the FDIC approved Bessemer's application for 
deposit insurance. The FDIC continued to approve such applications 
(i.e., applications from institutions with very limited deposit-taking 
activities) from the 1970s to the present. These non-traditional 
depository institutions have included trust companies, credit card 
banks and other specialized institutions. For example, one depository 
institution planned to hold no accounts except escrow accounts relating 
to mortgage loans. Another depository institution

[[Page 20104]]

planned to offer deposits to nobody except its affiliate's customers.
    Fourth, the Bank Holding Company Act (BHCA) contemplates the 
existence of depository institutions that are insured by the FDIC even 
though they do not accept a continuing stream of non-trust deposits 
from the general public. See 12 U.S.C. 1841(c). 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 (without requiring) that an institution could be 
insured by the FDIC even though the institution does not accept non-
trust deposits from the general public.
    Fifth, the leading case indicates that a depository institution may 
be ``engaged in the business of receiving [non-trust] deposits'' even 
though the institution holds a very small amount of non-trust deposits. 
See Meriden Trust and Safe Deposit Company v. FDIC, 62 F.3d 449 (2d 
Cir. 1995). Indeed, this case indicates that an amount as small as 
$200,000 is a sufficient amount of non-trust deposits.
    Sixth, some State banking statutes contemplate the existence of 
FDIC-insured depository institutions that are severely restricted in 
their ability to accept non-trust deposits from the general public. For 
example, 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.
    Each of the factors above was discussed in detail in General 
Counsel Opinion No. 12. See 65 FR 14568 (May 17, 2000). The purpose of 
General Counsel Opinion No. 12 was to remove uncertainty as to the 
meaning of being ``engaged in the business of receiving deposits other 
than trust funds''. In fulfilling this purpose, the General Counsel 
opinion was unsuccessful. In a recent case known as Heaton v. Monogram, 
the statutory interpretation set forth in General Counsel Opinion No. 
12 was rejected by a federal district court. See Heaton v. Monogram 
Credit Card Bank of Georgia, 2001 WL 15635 (E.D. La. January 5, 2001). 
In that case, the district court declared that the FDIC's 
interpretation ignores the statute because the statute refers to 
``deposits'' in the plural. In the court's opinion, a depository 
institution cannot be ``engaged in the business of receiving deposits 
other than trust funds'' unless the institution maintains more than one 
deposit account.
    As a result of the court's ruling, uncertainty continues to exist 
as to the meaning of being ``engaged in the business of receiving 
deposits other than trust funds''. Also, the court's ruling creates a 
situation with serious implications. The situation includes two 
components. First, the FDIC has extended federal deposit insurance to a 
particular financial institution on the basis that the financial 
institution is ``engaged in the business of receiving deposits other 
than trust funds''. Second, notwithstanding the action by the FDIC, the 
court has ruled that the financial institution is not ``engaged in the 
business of receiving deposits other than trust funds''. The 
implications of this situation (conflicting decisions by the FDIC and a 
court) are discussed below.

III. The Importance of Consistent Interpretations

    The granting of an application for deposit insurance by the FDIC 
invests the depository institution with certain privileges. The FDIC 
does not extend these privileges as a matter of contract; rather, the 
privileges are statutory in nature. For example, the FDI Act provides 
that all deposits at an insured depository institution (i.e., an 
institution approved by the FDIC) are insured up to the $100,000 limit. 
See 12 U.S.C. 1815, 1816, 1821. This federal insurance will assist the 
depository institution in attracting depositors. Indeed, the depository 
institution often is required by its chartering authority to obtain 
federal deposit insurance as a condition to conducting business. See, 
e.g., Fla. Stat. 658.995(3); Va. Code 6.1-392.1.A.4.
    Another example of a privilege or benefit is provided by section 27 
of the Act, which enables State-chartered insured depository 
institutions to operate under a single State's interest rate laws 
rather than to operate under a separate set of laws for each State in 
which the institution conducts business. See 12 U.S.C. 1831d. As a 
result, an insured State nonmember bank is able to avoid certain State 
restrictions on fees and interest rates when operating outside the 
institution's State of incorporation.
    The privileges and benefits arising under the Act are accompanied 
by certain responsibilities and restrictions. For example, insured 
depository institutions are subject to assessments by the FDIC. See 12 
U.S.C. 1817. Also, insured depository institutions are required to 
operate in a safe and sound manner. See 12 U.S.C. 1818(b). Restrictions 
on lending are applicable. See 12 U.S.C. 1828(j). Another example of a 
restriction is provided by section 24 of the Act, which places limits 
on the activities of insured State banks. See 12 U.S.C. 1831a. In 
addition, insured State nonmember banks are subject to FDIC 
examinations. See 12 U.S.C. 1820(b). These include examinations for 
compliance with a number of Federal consumer laws. If violations of 
these laws are discovered, the bank is subject to enforcement actions. 
See, e.g., 12 U.S.C. 1818(b), 1818(e), 1818(i)(2).
    Nothing in the FDI Act suggests that Congress intended depository 
institutions to enjoy the privileges arising under the Act without 
assuming the responsibilities. On the contrary, Congress created one 
broad scheme applicable to ``insured depository institutions''. Under 
this scheme, the deposits at a particular institution cannot be insured 
unless that institution is subject to assessments. Similarly, a State 
bank should not be able to avoid State fees and interest rates under 
section 27 of the Act unless the bank also is subject to the 
restrictions imposed by section 24. Conversely, a State bank should not 
be subject to the

[[Page 20105]]

restrictions imposed by section 24 unless the bank is able to enjoy the 
benefit of section 27.
    For ``State banks'' (as opposed to federally chartered depository 
institutions), the benefits as well as the burdens provided by the Act 
rest upon the premise that the depository institution is ``engaged in 
the business of receiving deposits, other than trust funds.'' See 12 
U.S.C. 1813(a)(2) (defining ``State bank'' in such a way as to include 
only those institutions ``engaged in the business of receiving 
deposits, other than trust funds''). For this reason, the phrase 
``engaged in the business of receiving deposits other than trust 
funds'' should be interpreted consistently. It should not be 
interpreted one way under section 5 of the Act (involving applications 
for deposit insurance) and another way under section 24 (imposing 
restrictions on the activities of State banks) and yet another way 
under section 27 (enabling State banks to avoid certain restrictions on 
fees and interest rates). Similarly, a particular section of the Act 
incorporating the phrase (``engaged in the business,'' etc.) should not 
be interpreted one way by a court in one State but another way by a 
different court in another State. Inconsistent interpretations could 
lead to irrational results, e.g., the existence of a State bank insured 
by the FDIC (on the basis of a finding by the FDIC that the bank is 
``engaged in the business of receiving deposits other than trust 
funds'') but free from the restrictions imposed by section 24 in one 
State (on the basis of a finding by a court in that State that the bank 
is not ``engaged in the business of receiving deposits other than trust 
funds'') but perhaps subject to such restrictions in another State (on 
the basis of a finding by a court in the second State that the bank is 
``engaged in the business of receiving deposits other than trust 
funds'').
    Arguably, the FDIC could create consistency by terminating the 
insured status of a depository institution whenever any court in any 
State determines that the institution is not ``engaged in the business 
of receiving deposits other than trust funds''. Perhaps the FDIC, at 
the same time, could terminate the insured status of all similar 
depository institutions. Such an approach would raise grave concerns 
for the owners and customers of the institutions. Also, such an 
approach would be unfair because the organizers of depository 
institutions should be able to rely on the FDIC's determination--in 
granting insurance--that the institutions are ``engaged in the business 
of receiving deposits other than trust funds.'' Finally, such an 
approach would ignore the fact that other courts in other States might 
view the same institutions as being ``engaged in the business of 
receiving deposits other than trust funds.''
    Uniformity is needed. Both banks and the public need to know that 
the applicable Federal banking laws will be applied equally throughout 
the United States. Moreover, they need assurance that once the FDIC 
grants insurance to a bank or thrift, the deposits at that bank or 
thrift will remain insured.
    At present, uniformity is threatened because the meaning of the 
statute is subject to doubt. Under the FDIC's interpretation as set 
forth in General Counsel Opinion No. 12, a depository institution is 
``engaged in the business of receiving deposits other than trust 
funds'' if the institution holds one or more non-trust deposit accounts 
in the aggregate amount of $500,000. Under the interpretation adopted 
by the Heaton court, however, a depository institution cannot be 
``engaged in the business of receiving deposits other than trust 
funds'' unless the institution holds some indeterminate number of 
deposit accounts greater than one.
    The inconsistency between the FDIC's interpretation and a court's 
interpretation could produce irrational and harmful results. For this 
reason, the meaning of the statute must be clarified so that a uniform 
interpretation may be applied.

IV. The Petition

    The promulgation of a regulation has been requested through a 
petition submitted to the FDIC's Board of Directors by the Conference 
of State Bank Supervisors (CSBS). This organization represents State 
officials responsible for chartering, regulating and supervising State-
chartered banks.
    An opposing letter has been submitted by the plaintiff in the 
Heaton v. Monogram litigation. In this opposing letter, the plaintiff 
has argued that the promulgation of a regulation at this time would 
represent an ``abuse of discretion'' and a ``conflict of interest''. 
The plaintiff believes that no regulation should be promulgated until 
the litigation is completed.
    The FDIC does not agree that the initiation of the rulemaking 
process would constitute an ``abuse of discretion''. On the contrary, 
the FDIC believes that rulemaking is necessary in order to remove the 
existing uncertainty and confusion. See Smiley v. Citibank, N.A., 517 
U.S. 735, 116 S. Ct. 1730 (1996). Accordingly, the FDIC has decided to 
publish this notice of proposed rulemaking.
    Of course, the publication of this notice does not mean that the 
FDIC necessarily will adopt the proposed rule as a final rule. The FDIC 
is interested in receiving comments from all interested members of the 
public--not just the plaintiff and the defendant in the Heaton 
litigation--because the final rule (if any) will be effective 
nationwide. The comments may address all aspects of the proposed rule.
    Comments are requested to address all ambiguities in the statute. 
As previously mentioned, 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 deposits other 
than trust funds''. Similarly, the statute does not specify whether a 
depository institution must maintain a particular number of deposit 
accounts or accept a particular number of deposits within a particular 
period in order to be ``engaged in the business of receiving deposits 
other than trust funds''. Likewise, 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 trust customers or employees or 
affiliates).
    Over the years, the FDIC has granted deposit insurance to banks 
that intended to accept only one or a limited number of deposits from 
its trust customers, its employees, or its affiliates. The court in the 
Heaton litigation questioned whether a single deposit is adequate. In 
its recent ruling, the court noted that the statute refers to 
``deposits'' in the plural. On the basis of this word (``deposits''), 
the court found that the FDIC had ``ignored'' the statutory language in 
adopting the interpretation set forth in GC12. See Heaton v. Monogram 
Credit Card Bank of Georgia, 2001 WL 15635, *3 (E.D. La. January 5, 
2001).
    In fact, the FDIC in GC12 discussed the statutory language at 
length. See 65 FR 14568, 14569 (March 17, 2000). As explained in GC12, 
the statute 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

[[Page 20106]]

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.
    In any event, the FDIC is interested in comments as to whether one 
deposit account should be considered enough. Also, the FDIC is 
interested in comments as to whether there should be a minimum amount 
of non-trust deposits. Commenters should explain the reasons supporting 
their opinions.
    Under the proposed rule, a depository institution would be 
``engaged in the business of receiving deposits other than trust 
funds'' if the institution maintains one or more non-trust deposit 
accounts in the aggregate amount of $500,000.
    The figure of $500,000 is being proposed for several reasons. 
First, it is more than a nominal sum. Indeed, it is greater than the 
amount involved in the leading case of Meriden Trust and Safe Deposit 
Company v. FDIC, 62 F.3d 449 (2d Cir. 1995). In that case, the court 
found that only $200,000 of non-trust deposits was a sufficient amount. 
Second, the figure of $500,000 is not so great that it would prevent 
non-traditional depository institutions from obtaining FDIC insurance 
when necessary. As previously mentioned, the Bank Holding Company Act 
contemplates the existence of depository institutions that are insured 
by the FDIC even though they do not accept a continuing stream of non-
trust deposits from the general public. See 12 U.S.C. 1841(c). Also, 
some State banking statutes contemplate the existence of FDIC-insured 
depository institutions that are severely restricted in their ability 
to accept non-trust deposits from the general public. See, e.g., Va. 
Code 6.1-392.1.A.4. Third, $500,000 is the amount of non-trust deposits 
allowed by the FDIC in recent years in connection with a number of 
applications for deposit insurance. Applications involving the precise 
amount of $500,000 can be traced as far back as 1991. This circumstance 
indicates that an understanding or expectation may have developed in 
the banking industry that the holding of $500,000 of non-trust deposits 
represents a reliable ``safe harbor.''
    As previously explained, the purpose of the proposed regulation is 
to create uniformity and certainty. The choice of any specific dollar 
figure would serve this purpose. For the reasons set forth above, the 
FDIC has chosen $500,000. Commenters are free to suggest alternative 
amounts or alternative standards.
    In summary, the FDIC is interested in comments as to whether the 
proposed $500,000 minimum level is appropriate or whether the minimum 
should be higher or lower and why. If a minimum level is to be 
established by regulation, the FDIC is interested in whether an 
exception should be made for a new depository institution (i.e., 
whether a new depository institution should be given a certain period 
of time to reach the minimum level).
    The court in the Heaton litigation questioned the appropriateness 
of permitting a bank to accept deposits from its affiliates only as 
opposed to accepting deposits from the general public. The FDI Act does 
not specify whether deposits must originate from a particular source. 
In any event, the FDIC is interested in comments as to whether deposits 
must be accepted from the public at large or whether deposits may be 
limited to a particular group (such as the bank's trust customers or 
employees or affiliates).
    Finally, the FDIC notes that banking has evolved over the years. 
The typical brick-and-mortar full-service bank is no longer the only 
type of institution offering banking services. Today, for example, 
Internet banks offer banking services through a medium never imagined 
when the FDIC was created. In light of these changes, the FDIC is 
interested in comments as to whether the adoption of a regulatory 
definition of being ``engaged in the business of receiving [non-trust] 
deposits'' might stifle innovation in the banking industry or stifle 
the development or evolution of new types of banks.

Request for Comments

    The FDIC's Board of Directors (Board) is seeking comments on 
whether the agency should adopt a regulatory standard for determining 
whether a depository institution is ``engaged in the business of 
receiving deposits other than trust funds''. Under the proposed rule, a 
depository institution would be ``engaged in the business of receiving 
[non-trust] deposits'' if the institution maintains one or more non-
trust deposit accounts in the amount of $500,000 or more.
    Commenters are free to suggest different standards. Indeed, 
commenters are free to suggest that the FDIC at this time should adopt 
no standard. The Board invites comments on all of the following 
questions:
    1. Should the FDIC adopt a regulatory standard for determining 
whether a depository institution is ``engaged in the business of 
receiving deposits other than trust funds''?
    2. If so, should the standard be based on a particular number and/
or amount of non-trust deposits? Or should the standard be based on 
other factors, such as the institution's legal authority to accept non-
trust deposits or the institution's policies with respect to the 
acceptance of non-trust deposits?
    3. Assuming a minimum amount of non-trust deposits is required, 
should the standard be based on a particular number of non-trust 
deposit accounts? If so, should that number be one? If not, what should 
be the minimum number of non-trust deposit accounts? Why?
    4. Assuming that the standard should be based on a particular 
amount of non-trust deposits, should that amount be $500,000? If not, 
what should be the minimum amount of non-trust deposits? Why?
    5. Should a depository institution be required to accept deposits 
from the public at large (as opposed to accepting deposits from a 
particular group such as the institution's trust customers or employees 
or affiliates) in order to be ``engaged in the business of receiving 
deposits other than trust funds''? If so, why?
    6. Should a depository institution be required to offer a selection 
of different types of deposits (e.g., demand deposits, savings 
deposits, certificates of deposit) in order to be ``engaged in the 
business of receiving deposits other than trust funds''? If so, why?
    7. Should the FDIC create any exceptions for special circumstances? 
For example, should a new institution be given a certain period of time 
to reach the minimum number of non-trust deposit accounts or to attain 
the minimum amount of non-trust deposits?
    8. Should operating insured depository institutions be held to the 
same standard as applicants for deposit insurance? In other words, 
should the standard under section 8 of the FDI Act (involving 
terminations) be the same as the standard under section 5 (involving 
applications)? Should the FDIC terminate the insured status of any 
operating institution that does not meet the chosen standard? Should an 
operating insured institution be given a certain period of time to 
regain the level of $500,000 after falling below that level?
    9. Should the same standard apply to the definition of ``State 
bank'' under section 3 of the FDI Act? If not, what standard should 
apply? Why?

Paperwork Reduction Act

    The proposed rule would not involve any collections of information 
under the

[[Page 20107]]

Paperwork Reduction Act (44 U.S.C. 3501 et seq.). Consequently, no 
information has been submitted to the Office of Management and Budget 
for review.

Regulatory Flexibility Act

    The proposed rule would not have a significant economic impact on a 
substantial number of small businesses within the meaning of the 
Regulatory Flexibility Act (5 U.S.C. 601 et seq.). The proposed rule 
would apply to all FDIC-insured depository institutions and would 
impose no new reporting, recordkeeping or other compliance 
requirements. Although the proposed rule specifies that depository 
institutions must hold non-trust deposits in the amount of $500,000 or 
more in order to be ``engaged in the business of receiving deposits 
other than trust funds,'' the rule does not create a new requirement. 
Rather, the proposed rule clarifies an existing requirement. Moreover, 
the proposed rule is consistent with the standard already applied to 
depository institutions by the FDIC. Accordingly, the Act's 
requirements relating to an initial regulatory flexibility analysis are 
not applicable.

Impact on Families

    The proposed rule will not affect family well-being within the 
meaning of section 654 of the Treasury and General Government 
Appropriations Act, enacted as part of the Omnibus Consolidated and 
Emergency Supplemental Appropriations Act of 1999 (Pub. L. 105-277, 112 
Stat. 2681).

List of Subjects in 12 CFR Part 303

    Administrative practice and procedure, Authority delegations 
(Government agencies), Bank deposit insurance, Banks, banking, 
Reporting and recordkeeping requirements, Savings associations.

    The Board of Directors of the Federal Deposit Insurance Corporation 
hereby proposes to amend part 303 of title 12 of the Code of Federal 
Regulations as follows:

PART 303--FILING PROCEDURES AND DELEGATIONS OF AUTHORITY

    1. The authority citation for part 303 continues to read as 
follows:

    Authority: 12 U.S.C. 378, 1813, 1815, 1816, 1817, 1818, 1819 
(Seventh and Tenth), 1820, 1823, 1828, 1831a, 1831e, 1831o, 1831p-1, 
1835a, 3104, 3105, 3108, 3207; 15 U.S.C. 1601-1607.
    2. Add new Sec. 303.14 to read as follows:


Sec. 303.14  Being ``engaged in the business of receiving deposits 
other than trust funds''.

    For all purposes of the Act, a depository institution shall be 
``engaged in the business of receiving deposits other than trust 
funds'' if the institution maintains one or more non-trust deposit 
accounts in the aggregate amount of $500,000 or more.

By order of the Board of Directors.

    Dated at Washington, DC, this 10th day of April, 2001.

Federal Deposit Insurance Corporation.
James D. LaPierre,
Deputy Executive Secretary.

    Note: The following appendix will not appear in the Code of 
Federal Regulations.

Appendix

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'').

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

[[Page 20108]]

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 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 C.F.R. 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

[[Page 20109]]

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 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

[[Page 20110]]

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 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

[[Page 20111]]

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.

[FR Doc. 01-9712 Filed 4-18-01; 8:45 am]
BILLING CODE 6714-01-P