The Federal Deposit Insurance Corp. has been fighting to restrict the role of so-called money brokers who serve as intermediaries between investors with lots of cash and banks willing to pay high rates.
FDIC Chairman William M. Isaac long has argued that brokered deposits should be curtailed because they frequently show up in banks that are troubled or have failed, permitting such banks to stay in business longer than they should and increasing the costs to the FDIC insurance fund when they ultimately fail.
The agency, with varying degrees of success, has been clamping down on brokers and their clients who seek high yields from banks about which they know nothing other than that their deposits are protected by FDIC insurance up to $100,000.
In one recent bank failure, the agency said it found evidence that should discourage depositors from putting their funds in unfamiliar banks.
According to FDIC spokesman Alan Whitney, some investors who apparently used deposit brokers to put funds in Strong's Bank of Dodgeville, Wis., are in for a rude surprise. The bank, which recently failed, never entered the deposits on its books. Instead, most of the funds were "misapplied" and used to repay a loan from a Minneapolis bank.
The bank, which failed June 16, received 15 funds transfers, each for $100,000 -- four on June 11 and the rest on June 12. The funds were wired to Strong's account at a Milwaukee bank and should have been recorded on the books of the Dodgeville bank. They were not.
Bank examiners said that there are no deposit brokers listed on the wire transfers, but that each of the transfers resembled a typical brokered deposit.
Most brokers deposit no more than $100,000 of a client's money at any individual bank. If a client has $1 million to invest, his money broker breaks it down into 10 deposits of $100,000 each that go to 10 banks -- each taking full advantage of the FDIC insurance limit.
Two of the depositors apparently lucked out. Just before they closed the bank, Wisconsin authorities noticed funds in the Strong's Bank account in Milwaukee that had not been entered on the bank's books. The authorities forced the bank to return the funds to the depositors.
In this case, the FDIC also has refused to pay off on $1.1 million of brokered deposits that were properly entered on the bank's books because, the agency said, the brokered funds appear to have been deposited on the condition that Strong's Bank make a particular risky loan. FUN IN THE NAKED CITY
The FDIC team that closed down the Golden Pacific Bank in New York's Chinatown late last month faced more than normal customer discontent. At one point, angry depositors rushed the bank. Security guards and examiners had to physically hold the bank's doors closed until New York's finest arrived to disperse the crowd.
The FDIC was given only 24 hours' notice that the Comptroller of the Currency would close the bank, and had to scramble to find a liquidation and closing team. The FDIC reached out to Kansas and Oklahoma to pull experienced employes off bank closings in progress, and had to look to the West Coast to find the few FDIC employes who could speak Chinese. Many of Golden Pacific's records are in Chinese. NEW POWERS
The Federal Reserve Board, which regulates companies that own banks, has added some items to the list of nonbanking activities that it says so-called bank holding companies may undertake. It said banks could break into turf normally controlled by accounting and consulting firms, and design, assemble and administer pension and profit-sharing plans. It made the decision when it approved the application of Norstar Bancorp of Albany, N.Y., to acquire an actuarial consulting firm.
Among the other nonbank activities on the Fed's list are tax preparation for individuals, discount securities brokerage, credit insurance and mortgage banking.