The FDIC has issued an Advance Notice of Proposed Rulemaking (ANPR) seeking comment on its regulatory approach to brokered deposits and interest rate restrictions.
The FDIC’s current regulations on brokered deposits and interest rate restrictions are set forth at 12 C.F.R. Section 337.6. Such regulations implement Section 29 of the Federal Deposit Insurance Act which restricts an insured depository institution that is less than well capitalized from soliciting or accepting deposits by or through a “deposit broker.” It also imposes restrictions on the interest rate that such institutions can pay on deposits.
The FDIC states in the ANPR that it is undertaking a “comprehensive review [of] its brokered deposit and interest rate regulations in light of significant changes in technology, business models, the economic environment, and products since the regulations were adopted.” Through the ANPR, the FDIC seeks input on how it “can improve its implementation of Section 29 of the FDI Act, while continuing to protect the safety and soundness of the banking system.” The FDIC also seeks input on a series of specific questions, with one set of questions directed at brokered deposits and a second set directed at interest rate restrictions.
In addition to two sections that discuss various issues concerning brokered deposits and interest rate restrictions, the ANPR’s Supplementary Information contains a section that reviews the current law and regulations and their history and another section that reviews the history of brokered deposit use by insured institutions, including the impact of the bank failures that occurred during the 1980s, and related research findings. The ANPR also includes two appendices: Appendix 1 providing “descriptive statistics detailing the historical holdings of brokered deposits by bank size and [Prompt Corrective Action] capital classification status” and Appendix 2 providing an updated analysis of core and brokered deposits using data through the end of 2017.
Given the infrequency with which the FDIC has granted waivers to the interest rate restrictions for banks that are deemed less than well capitalized (including banks that have entered into an enforcement action with a capital provision), a reexamination of the brokered deposit rules will be viewed positively by the industry. Further, although a financial institution could use brokered deposits to fund rapid growth, brokered deposits can be a more stable long-term funding source on a financial institution’s balance sheet. The industry will benefit if financial institutions can use brokered deposits responsibly without significant limitations to manage liquidity needs and limit interest rate risk.
Responses to the ANPR will be due no later than 90 days after the date of its publication in the Federal Register.