[Federal Register Volume 66, Number 210 (Tuesday, October 30, 2001)]
[Rules and Regulations]
[Pages 54645-54651]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-27198]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 303

RIN 3064-AC49


Engaged In The Business of Receiving Deposits Other Than Trust 
Funds

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: This final rule amends the FDIC's regulations covering filing 
procedures and delegations of authority, to clarify the meaning of the 
phrase ``engaged in the business of receiving deposits other than trust 
funds'' in the Federal Deposit Insurance Act. Under the rule, an 
insured depository institution must maintain one or more non-trust 
deposit accounts in the aggregate amount of $500,000 in order to be 
``engaged in the business of receiving deposits other than trust 
funds''. Each newly insured depository institution will be deemed to be 
``engaged in the business of receiving deposits other than trust 
funds'' for a period of one year from the date it opens for business. 
If a newly insured depository institution fails to achieve the minimum 
deposit standard by the end of that time period, it will be subject to 
a determination by the FDIC that the institution is not ``engaged in 
the business of receiving deposits other than trust funds'', and to 
appropriate administrative action to terminate its insured status. 
Similarly, each insured depository institution, other than a newly 
insured depository institution, that is below the minimum deposit 
standard on two consecutive call report dates will be subject to a 
determination by the FDIC that the institution is not ``engaged in the 
business of receiving deposits other than trust funds'', and to 
appropriate administrative action to terminate its insured status. The 
final rule also clarifies that the maintenance of one or more non-trust 
deposit accounts in the aggregate amount of $500,000 is not a ``safe 
harbor'', but rather the minimum standard in order for an institution 
to be considered ``engaged in the business of receiving deposits other 
than trust funds'' under the Federal Deposit Insurance Act.

EFFECTIVE DATE: November 29, 2001.

FOR FURTHER INFORMATION CONTACT: Christopher L. Hencke, Counsel, (202) 
898-8839, or Robert C. Fick, Counsel, (202) 898-8962, Legal Division, 
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 by 
depository institutions 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 section 6 of 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 its 
``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

[[Page 54646]]

``engaged in the business of receiving deposits, other than trust funds 
* * *'' 12 U.S.C. 1813(a)(2).
    The phrase ``engaged in the business of receiving deposits other 
than trust funds'' as used in the FDI Act is ambiguous. For example, 
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, 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 deposits other than trust 
funds.'' 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, its 
employees or affiliates).
    In applying this statutory requirement (``engaged in the business 
of receiving deposits other than trust funds'') for over thirty years, 
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. However, the FDIC's long-standing practice of approving 
applications from such non-traditional depository institutions has not 
been formally codified in such a way as to remove public uncertainty as 
to the meaning of the phrase ``engaged in the business of receiving 
deposits other than trust funds.''

II. General Counsel Opinion No. 12

    In order to clarify this ambiguity in the statute, the FDIC 
published General Counsel Opinion No. 12. See 65 FR 14568 (March 17, 
2000). 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.
    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.'' However, as indicated by a 
recent court ruling, issuance of the General Counsel's opinion did not 
achieve that purpose. In Heaton v. Monogram Credit Card Bank of 
Georgia, 2001 WL 15635 (E.D. La. January 5, 2001) the statutory 
interpretation set forth in General Counsel Opinion No. 12 was rejected 
by a federal district court. 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.''
    The phrase ``engaged in the business of receiving deposits other 
than trust funds'' should not be subject to differing and, perhaps, 
inconsistent judicial interpretations. Uniformity is needed. Both banks 
and the public need to know that the applicable Federal banking laws 
will be applied consistently 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 so long 
as it satisfies the legal requirement of being ``engaged in the 
business of receiving deposits other than trust funds,'' and the FDIC 
has not terminated its insurance.

III. The Petition

    The Conference of State Bank Supervisors (CSBS), an organization 
representing state officials responsible for chartering, regulating and 
supervising state-chartered banks, petitioned the FDIC's Board of 
Directors to promulgate a regulation to clarify the meaning of the 
phrase ``engaged in the business of receiving deposits other than trust 
funds'' as used in the FDI Act.
    An opposing letter submitted by the plaintiff in the Heaton v. 
Monogram litigation questioned the timing of the regulation. In this 
opposing letter, the plaintiff argued that the promulgation of a 
regulation while litigation relating to this issue is pending 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 rulemaking would constitute an ``abuse 
of discretion.'' On the contrary, the FDIC believes that rulemaking is 
necessary in order to remove the existing uncertainty, confusion and 
the potential for inconsistent interpretations. See Smiley v. Citibank, 
N.A., 517 U.S. 735, 116 S. Ct. 1730 (1996).

IV. Questions And Comments

    When the FDIC's Board of Directors (Board) published its notice of 
proposed rulemaking, Being Engaged in the Business of Receiving 
Deposits Other Than Trust Funds, 66 FR 20102, (April 19, 2001) it 
sought comments from the public on all aspects of the rule and also 
sought responses on nine specific questions. The FDIC received twenty-
one timely comment letters and two comment letters submitted after the 
end of the comment period. Also, one letter objected to the FDIC's 
consideration of comment letters thought to be filed late. Overall, 
eighteen timely comment letters were in favor of the regulation and 
three were opposed.
    The nine questions and a summary of the comments/responses to those 
questions are detailed below.

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''?

    Eighteen comment letters were in favor of the FDIC's adoption of a 
regulatory standard: eight depository institutions or depository 
institution holding companies, three financial institution trade 
associations, three law firms, two state banking supervisors, the 
Office of Thrift Supervision, and VISA U.S.A., Inc. Three commenters 
objected to the adoption of any regulatory standard by the FDIC. These 
objections are addressed in detail in the following section.

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?

    Three commenters responded on this question. One thought that the 
standard could be based on a particular number and amount of non-trust 
deposits. Another thought that the standard should not be based on any 
particular number of non-trust deposits as long as the institution had 
the capacity to accept even one non-trust deposit. The third commenter 
thought that an institution only needs to have the legal authority to 
receive non-trust deposits in order to be engaged in the business of 
receiving deposits other than trust funds.
    The FDIC has considered the suggestions that legal authority or 
capacity to accept non-trust deposits alone is sufficient, but believes 
that its standard is the better approach. Bare legal authority or 
capacity to receive non-trust deposits without the actual receipt or 
holding of any deposits evidences only a potential ability to receive 
deposits, and this potential may never be realized. If an institution 
can be engaged in the business of receiving deposits other than trust 
funds simply by having the legal authority or capacity

[[Page 54647]]

to receive deposits, it would be able to enjoy all of the benefits of 
being an insured institution e.g., the ability to export interest 
rates, without ever actually providing any deposit services. We do not 
believe that such a standard would be consistent with the purposes of 
federal deposit insurance. Consequently, the FDIC has declined to adopt 
that standard.

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?

    Of the thirteen commenters responding on this question, none 
thought that an institution should be required to maintain more than 
one deposit account.

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?

    Of the eleven commenters responding on this question, ten thought 
the minimum amount of non-trust deposits should be $500,000; the other 
commenter thought it should be a ``modest amount.''

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?

    Of the eleven commenters responding on this question, all thought 
that a depository institution should not 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, employees 
or affiliates).

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?

    Of the eleven commenters responding on this question, all thought 
that a depository institution should not be required to offer a 
selection of different types of deposits (e.g., demand deposits, 
savings deposits, certificates of deposit).

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?

    Of the eight commenters responding on this question, all thought 
that the FDIC should permit exceptions for special circumstances. Four 
commenters specifically mentioned permitting an exception for newly 
insured depository institutions; two also thought that there should be 
an exception for institutions (other than the newly insured 
institutions) that fall below the minimum to regain sufficient 
deposits; and one thought the FDIC should allow some time for banks, 
particularly in small communities, to meet the minimum deposit 
standard.
    The FDIC believes that these suggestions raise significant issues. 
At the time they apply for deposit insurance some newly chartered 
institutions, for example, those organized by individuals, may not have 
received $500,000 in non-trust deposits. Indeed, potential depositors 
may not want to put their money in an institution that is not yet 
insured. Absent some modification to the rule, this disincentive could 
prolong the time it takes an institution to reach the minimum deposit 
standard or possibly even prevent it from reaching the minimum deposit 
standard. Consequently, the FDIC has decided to modify the rule to 
provide that an applicant for deposit insurance would be deemed to be 
``engaged in the business of receiving deposits other than trust 
funds'' for one year from the date it opens for business. If such an 
institution does not meet the minimum deposit standard at the end of 
that period, it would be subject to a determination by the FDIC that 
the institution is not ``engaged in the business of receiving deposits 
other than trust funds'' and to termination of its insured status under 
section 8(p) of the FDI Act, 12 U.S.C. 1818(p).
    However, certain other newly chartered depository institutions 
should be able to meet the $500,000 minimum deposit standard from the 
outset. In particular, a newly chartered depository institution that is 
organized by, or intended to be owned by, an existing company (whether 
or not a bank holding company), typically does not need a grace period 
to reach the $500,000 minimum deposit standard. Therefore, the FDIC 
intends to include a condition in any order granting deposit insurance 
to such a depository institution that the depository institution have 
the $500,000 minimum deposit before deposit insurance becomes 
effective.
    Similarly, several commenters suggested a grace period for 
operating insured depository institutions that are not newly insured. 
The rationale for such a grace period is that any insured depository 
institution may, on occasion, fall below the minimum deposit standard, 
and it would be extremely disruptive and harmful if the institution's 
status were to immediately and automatically change as a result. For 
example, an institution's insured status might be called into doubt if 
it fell below the minimum deposit standard even for an instant. 
Furthermore, an institution that qualified as a ``State bank'' might 
abruptly lose that status if its total non-trust deposits fell below 
the minimum deposit standard. Of course, an institution's deposit 
insurance continues until terminated by the FDIC.
    The FDIC believes, however, that any perception that an institution 
might abruptly lose its insured status or its status as a ``State 
bank'' may cause uncertainty and disruption. Consequently, the FDIC has 
decided to modify the proposed rule to avoid such a result. The final 
rule provides that an insured depository institution (other than a 
newly insured institution) will be subject to a determination by the 
FDIC that the institution is not ``engaged in the business of receiving 
deposits other than trust funds'' and to termination of its insured 
status through administrative proceedings under section 8(p) of the FDI 
Act if the institution is below the minimum deposit standard on two 
consecutive call report dates. The term ``call report'' is used herein 
to refer collectively to the Consolidated Reports of Condition and 
Income, the Thrift Financial Report, and the Report of Assets and 
Liabilities of US Branches and Agencies of Foreign Banks. The call 
report dates are March 31st, June 30th, September 30th, and December 
31st.
    A brief discussion about section 8(p) as it relates to the 
institution's depositors is warranted. Under section 8(p) of the FDI 
Act, the FDIC is obligated to terminate the insured status of a 
depository institution that is not ``engaged in the business of 
receiving deposits other than trust funds.'' 12 U.S.C. 1818(p). A 
finding by the FDIC's Board of Directors that a depository institution 
is not ``engaged in the business of receiving deposits other than trust 
funds'' is conclusive. Id. Such

[[Page 54648]]

a finding, however, does not result in the immediate loss of deposit 
insurance. On the contrary, the institution remains insured for a 
period of time during which depositors are provided with notification 
of the date on which the institution's deposits will cease to be 
insured. See 12 CFR 308.124.

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?

    Of the five commenters responding on this question, all thought 
that operating insured depository institutions should be held to the 
same standard as applicants for deposit insurance. As noted above, two 
commenters thought that operating insured institutions should be given 
a period of time to regain the $500,000 minimum deposit standard after 
falling below it.
    The FDIC agrees that operating insured depository institutions 
should be held to the same standard as applicants for deposit 
insurance, and the final rule is consistent with that principle. With 
regard to the grace period suggestion, the FDIC has modified the rule, 
as discussed above, to provide a period of time for an institution to 
regain the minimum deposit standard if the institution should fall 
below it.

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?

    Of the seven commenters responding on this question, all thought 
that the same standard should apply to the definition of ``State bank'' 
under section 3 of the FDI Act, and four of the seven thought that the 
same standard should apply throughout the FDI Act.
    In addition to the responses to the nine questions, one commenter 
suggested that the rule should be a ``safe harbor'' as opposed to a 
minimum standard. The FDIC intends a minimum standard. The FDIC does 
not believe that a safe harbor approach will adequately clarify the 
meaning of the phrase ``engaged in the business of receiving deposits 
other than trust funds.'' Under a safe harbor approach uncertainty 
would exist as to the status of an institution that did not satisfy the 
$500,000 standard. A primary purpose of the rule is to remove ambiguity 
and uncertainty in this area, and the safe harbor approach does not 
achieve that purpose. Consequently, the FDIC has modified the rule to 
make it clear that the rule's requirements are a minimum standard, not 
a safe harbor. However, the rule is also structured so that a failure 
to satisfy the $500,000 standard will not result in an automatic 
termination of an institution's status as an insured institution or as 
a ``State bank.'' Rather, such a failure would make the institution 
subject to termination proceedings under section 8(p).

V. Objections to the Rule

    As noted above three commenters opposed the regulation. One 
opponent simply disagreed with the FDIC's interpretation of section 5 
of the FDI Act. Another opponent, U.S. Senator Mary L. Landrieu, was 
opposed to the FDIC's adoption of the regulation and thought it 
inappropriate to promulgate a regulation while the Heaton v. Monogram 
litigation was pending.
    The FDIC believes that it has acted properly in formalizing its 
interpretation of the FDI Act at this time. Because of the FDIC's 
statutory responsibility as a federal banking regulator, the FDIC has a 
strong interest in interpreting the FDI Act and in providing courts and 
private parties with guidance concerning its interpretation. Agencies 
often interpret their governing statutes during the course of 
litigation in order to provide courts and private litigants with needed 
guidance. Indeed, it is often litigation that discloses the need for 
such guidance. The Supreme Court cited this practice with approval in 
Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735 (1996), when it 
gave deference under the Chevron doctrine to a regulation interpreting 
the statutory term ``interest'' that was promulgated by the Comptroller 
of the Currency during the course of litigation. Additionally, it is 
appropriate for the FDIC to promulgate its statutory interpretation in 
the form of a formal regulation, in view of recent Supreme Court 
decisions restricting judicial deference in situations involving less 
formal interpretations of a statute. See Christensen v. Harris County, 
529 U.S. 576 (2000); U.S. v. Mead Corp., 121 S. Ct. 2164 (2001).
    Indeed, this regulation presents a classic example of a federal 
agency acting appropriately in furtherance of its statutory 
responsibility. The FDIC decided many years ago, in the course of 
approving applications for deposit insurance, to interpret the 
statutory phrase ``engaged in the business of receiving deposits'' to 
include banking institutions with limited deposit-taking activity. 
Accordingly, the FDIC approved numerous applications for deposit 
insurance from such institutions over a period of more than thirty 
years. Because the ongoing litigation has disclosed a need for a more 
formal interpretation, the FDIC is adopting this rule interpreting the 
statutory phrase consistent with both the FDIC's longstanding 
interpretation and other federal and state banking law.
    As noted above, the regulation is being issued to eliminate the 
current uncertainty and provide for consistency in the interpretation 
of the FDI Act. Consequently, the FDIC believes that it is not only 
appropriate but essential for the FDIC to issue a regulation clarifying 
the meaning of the phrase ``engaged in the business of receiving 
deposits other than trust funds.''
    The third opposition letter was submitted by a law firm on behalf 
of five consumer advocacy groups. These consumer groups are the 
National Consumer Law Center, the Consumer Federation of America, 
Consumers Union, U.S. Public Interest Research Group and the National 
Association of Consumer Advocates. In their letter, the consumer groups 
presented three arguments against the adoption of the proposed 
regulation. Each of these arguments is addressed in turn below.
    First, the consumer groups argued that the integrity of the 
regulatory process will be undermined by asserting a position that 
supports the defendant in the Heaton v. Monogram litigation. This 
argument ignores the nature and extent of the FDIC's statutory duties 
under the FDI Act. The FDIC cannot discharge its duties, for example, 
under section 5 of the FDI Act (involving applications for deposit 
insurance) and section 8 of the Act (involving terminations of 
insurance) without interpreting the statutory phrase. For this reason, 
the FDIC cannot be neutral. The FDIC must interpret the phrase 
``engaged in the business of receiving deposits other than trust 
funds'' in order to carry out its duties. Otherwise, the FDIC would be 
unable to make any decisions on any applications for deposit insurance. 
As pointed out above, it is important to note that the FDIC's 
interpretation has existed for many years prior to this litigation. It 
was not established with the purpose of either helping or hurting any 
party; rather, it was established with the

[[Page 54649]]

purpose of fairly and consistently administering the statute.
    Second, the consumer groups argued that the FDIC's interpretation 
as codified in the proposed regulation conflicts with the FDI Act. This 
argument is based upon the statute's use of the word ``business'' and 
the words ``receiving deposits.'' According to the consumer groups, 
these words mean that a depository institution must receive an 
``ongoing'' stream of deposits in order to be ``engaged in the business 
of receiving deposits other than trust funds.''
    The FDIC does not believe that the interpretation offered by the 
consumer groups is correct. The statute refers to ``business,'' not 
``primary business.'' See Royal Foods Co. Inc. v. RJR Holdings Inc., 
252 F.3d 1102 (9th Cir. 2001). The statute also recognizes that a 
single deposit can be accepted or ``received'' many times through 
rollovers. See 12 U.S.C. 1831f(b). Thus, the word ``receiving'' in the 
statute is consistent 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. In addition, the periodic accrual of interest 
represents the ``receiving'' of ``deposits.'' Moreover, the statute 
defines ``deposit'' in such a way as to treat ``receiving'' and 
``holding'' with equal significance for purposes of the definition of 
``deposit.'' See 12 U.S.C. 1813(l)(1).
    In short, the proposed regulation is consistent with the FDI Act. 
This conclusion is confirmed by Meriden Trust and Safe Deposit Company 
v. FDIC, 62 F.3d 449 (2d Cir. 1995). In that case, the court found that 
a bank was ``engaged in the business of receiving deposits other than 
trust funds'' even though the bank held only two accounts with a 
combined balance of only $200,000. Both of those accounts were from 
affiliates: one from the bank's parent company and one from its sister 
bank.
    In presenting their second argument, the consumer groups asserted 
that the Meriden case is distinguishable from the Heaton case. They 
noted that the two cases involved separate sections of the FDI Act 
(though both cases involved the same definition of ``State bank''). 
However, the meaning of being ``engaged in the business of receiving 
deposits other than trust funds'' should not vary depending upon which 
section of the FDI Act is under consideration and the consumer groups 
have presented no argument justifying such variation. Such an approach 
would lead to inconsistencies, uncertainties and confusion and would be 
contrary to the main purpose of the regulation which is to clarify the 
law for the benefit of depository institutions as well as the general 
public.
    Third, the consumer groups argued that the regulation will harm the 
public. This argument is based upon the proposition that an out-of-
state bank should not be able to avoid the host state's consumer 
protection laws. This argument is inconsistent with the express 
language of section 27 of the FDI Act, 12 U.S.C. 1831d. Through section 
27, Congress has specifically provided that an out-of-state ``State 
bank'' may export interest rates into a host state notwithstanding the 
host state's laws. This section was enacted to provide state banks 
competitive equality with national banks.
    Finally, the law firm representing the plaintiff in the Heaton v. 
Monogram litigation submitted a letter objecting to the FDIC's 
consideration of two other letters (both supporting the proposed 
regulation). The law firm argued that the two letters in question had 
been received by the FDIC after the expiration of the comment period.
    In fact, one of the two letters was received by the FDIC on the 
last day of the comment period (July 18, 2001). This letter was timely. 
The second letter supported the proposed regulation but in broad, 
general terms. Substantively, it was similar to a number of other 
letters. The FDIC did not rely upon this letter or another late-filed 
letter in its consideration of the final rule.
    The FDIC has carefully considered all of the timely comments 
received; most of the comments received are consistent with the FDIC's 
views and suggest no changes to the rule. However, as noted above, the 
FDIC has modified the proposed rule to incorporate certain grace 
periods suggested in the comments received in response to questions 7 
and 8, and has clarified the fact that the rule is not a safe harbor.

VI. Reasons for the Minimum Deposit Standard

    There are a number of substantial reasons for adopting the final 
rule. First, the statute is ambiguous (as discussed above). The FDIC in 
General Counsel Opinion 12 (GC12) discussed the statutory language at 
length. See 65 FR 14568, 14569 (March 17, 2000). 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 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. Moreover, 
the statute defines ``deposit'' in such a way as to treat ``receiving'' 
and ``holding'' with equal significance for purposes of the definition 
of ``deposit.'' See 12 U.S.C. 1813(l)(1).
    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 
intended to maintain only one or a very limited number of non-trust 
deposit accounts. 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 planned to offer 
deposits only to 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

[[Page 54650]]

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 deposits other than trust 
funds'' 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.
    The figure of $500,000 is being utilized 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. 
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.
    As previously explained, the purpose of the 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.

Paperwork Reduction Act

    The final rule does not involve any collections of information 
under the 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

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.) the FDIC hereby certifies that the final rule will 
not have a significant economic impact on a substantial number of small 
entities. The final rule will apply to all FDIC-insured depository 
institutions and will impose no new reporting, recordkeeping or other 
compliance requirements. Although the final 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 final rule clarifies an existing requirement. 
Moreover, the final rule is consistent with the standard already 
applied to depository institutions by the FDIC. Accordingly, the Act's 
requirements relating to an initial and final regulatory flexibility 
analysis are not applicable.

Impact on Families

    The FDIC has determined that this final 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).

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA) (Pub. L. 104-121) provides generally for agencies to report 
rules to Congress for review. The reporting requirement is triggered 
when the FDIC issues a final rule as defined by the Administrative 
Procedure Act (APA) at 5 U.S.C. 551. Because the FDIC is issuing a 
final rule as defined by the APA, the FDIC will file the reports 
required by SBREFA. The Office of Management and Budget has determined 
that this final rule does not constitute a ``major rule'' as defined by 
SBREFA.

List of Subjects in 12 CFR Part 303

    Administrative practice and procedure, Authority delegations 
(Government agencies), Banks, banking, Bank merger, Branching, Foreign 
investments, Golden parachute payments, Insured branches, Interstate 
branching, Reporting and recordkeeping requirements, Savings 
associations.

    The Board of Directors of the Federal Deposit Insurance Corporation 
hereby amends 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. New Sec. 303.14 is added to subpart A to read as follows:


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

    (a) Except as provided in paragraphs (b), (c), and (d) of this 
section, a depository institution shall be ``engaged in the business of 
receiving deposits other than trust funds'' only if it

[[Page 54651]]

maintains one or more non-trust deposit accounts in the minimum 
aggregate amount of $500,000.
    (b) An applicant for federal deposit insurance under section 5 of 
the FDI Act, 12 U.S.C. 1815(a), shall be deemed to be ``engaged in the 
business of receiving deposits other than trust funds'' from the date 
that the FDIC approves deposit insurance for the institution until one 
year after it opens for business.
    (c) Any depository institution that fails to satisfy the minimum 
deposit standard specified in paragraph (a) of this section as of two 
consecutive call report dates (i.e., March 31st, June 30th, September 
30th, and December 31st) shall be subject to a determination by the 
FDIC that the institution is not ``engaged in the business of receiving 
deposits other than trust funds'' and to termination of its insured 
status under section 8(p) of the FDI Act, 12 U.S.C. 1818(p). For 
purposes of this paragraph, the first three call report dates after the 
institution opens for business are excluded.
    (d) Notwithstanding any failure by an insured depository 
institution to satisfy the minimum deposit standard in paragraph (a) of 
this section, the institution shall continue to be ``engaged in the 
business of receiving deposits other than trust funds'' for purposes of 
section 3 of the FDI Act until the institution's insured status is 
terminated by the FDIC pursuant to a proceeding under section 8(a) or 
section 8(p) of the FDI Act. 12 U.S.C. 1818(a) or 1818(p).

    By order of the Board of Directors.

    Dated at Washington, DC, this 23rd day of October 2001.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 01-27198 Filed 10-29-01; 8:45 am]
BILLING CODE 6714-01-P