Q: What is an example of when the deposits in a programmatic arrangement to refer depositors are not brokered deposits?
A: Some banks have programs where bank customers or employees of subsidiaries or affiliates of the bank can earn bonuses in the form of cash, merchandise, or a higher interest rate on a deposit for referring depositors. These programs are sometimes referred to as “friends and family” or loyalty programs. Although these arrangements may be formal and programmatic because they are both covered by a written agreement and the referring individual is paid a fee, the FDIC might determine that the program is sufficiently limited in scope so that it is not deemed to be a brokered deposit arrangement. In this regard, the FDIC considers whether the program is designed to significantly drive deposit growth to the insured depository institution or is merely a small recognition of the customer’s or employee’s loyalty to the bank.
In making the determination, the FDIC considers whether the cost of the incentive package to the bank is relatively small, the fee is de minimis to the recipient, and payments are capped in total amount or limited in frequency per individual.