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From Banking and Finance Law Daily, December 18, 2018

FDIC seeks information on brokered deposits, interest rate caps

By Richard A. Roth, J.D.

The Federal Deposit Insurance Corporation is asking for information that it can use as it reviews its brokered deposit and interest rate cap regulations that apply to less than well capitalized banks. The advance notice of proposed rulemaking cites technological changes as the reason for revisiting the FDIC’s brokered deposit rules and says that changes in the economic environment have brought interest rate restrictions into question.

Statutory brokered deposit restrictions were enacted in 1989 due to the risks that these deposits posed, the ANPR says. Brokered and high interest rate deposits could allow a bank to increase its risky assets without proper controls and then try to grow its way out of problems that arose. Also, these deposits could be volatile, as the brokers or depositors could withdraw their funds to chase even higher rates elsewhere.

Currently, the Federal Deposit Insurance Act and the FDIC’s regulations impose brokered deposit restrictions on banks that are less than well capitalized and prohibit these banks from paying interest at a rate that significantly exceeds an FDIC-set cap. The agency has the authority to waive the restrictions for banks that are adequately capitalized. The ANPR also notes that the Economic Growth, Regulatory Relief, and Consumer Protection Act created an exception from brokered deposit consideration for some reciprocal deposits.

The ANPR asks for responses on both brokered deposit and interest rate cap questions.

Brokered deposits queries. Six specific questions are asked about the brokered deposit restrictions:

  1. Are some deposits incorrectly considered to be brokered deposits?
  2. Should some deposits be considered brokered deposits that currently are not included?
  3. What financial industry changes have occurred since the regulations were adopted that the FDIC should consider?
  4. Do the regulations make clear who is a deposit broker and what is a brokered deposit?
  5. Are there appropriate changes that could only be implemented after a statutory amendment?
  6. Should the Call Report forms be changed to give the FDIC more information on brokered deposits?

Rate cap queries. Six other questions ask for information on interest rate caps:

  1. Are there better ways the FDIC could implement the interest rate restrictions?
  2. Should the national rate cap be calculated differently?
  3. Should the normal market rate be calculated without a presumption that it is the same as the national rate?
  4. Should the rate cap of 75 basis points higher than either the national or market rate be changed?
  5. How should deposits with promotional or other special features be treated?
  6. How should rates offered by Internet or electronic-based financial institutions be calculated?

American Bankers Association viewpoint.According to the American Bankers Association, the ANPR is "an important next step toward modernizing regulations so that they better align with how customers want to interact with their banks." Banks need the ability to innovate to enhance their deposit-taking function, and the 30-year-old regulation has not kept up with technological improvements, the ABA says.

Companies: American Bankers Association

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