Q: Are deposits placed by the trust department of an insured depository institution classified as brokered deposits?
A: As stated above, the definition of deposit broker includes the following exception: “A trust department of an insured depository institution, if the trust or other fiduciary relationship in question has not been established for the primary purpose of placing funds with insured depository institutions.”8 Under this exception, a bank’s trust department might or might not qualify as a deposit broker. For example, if the trust department is acting as a traditional trustee with fiduciary responsibilities and investment discretion over the assets of an irrevocable trust, the trust department will not be a deposit broker because the trust relationship will have been established for the primary purpose of administering the trust and not for the primary purpose of “placing funds with insured depository institutions.”
On the other hand, if the trust department is merely assisting customers in placing funds at insured depository institutions so that the customers may obtain total FDIC insurance coverage in excess of the $250,000 limit, the trust department will be a deposit broker and the deposits (at the receiving insured depository institution) will be brokered deposits. In Advisory Opinion No. 92-87 (December 9, 1992), the FDIC staff explained the distinction as follows: “The brokered deposit restrictions were not intended to curtail the normal activities of trust departments, but since a blanket exemption for all trust department activities might have led to circumvention of the statute through various trust-type mechanisms, the statute imposed a ‘primary purpose’ test. The primary purpose test serves to distinguish the normal activities of trust departments from arrangements that have the purpose and effect of circumventing the statute. The ‘primary purpose’ of an agreement with a trust department can only be determined on a case-by-case basis, in light of the particular facts and circumstances of each case.”