Perhaps the biggest FDIC release was a request for comment on the agency's brokered deposit regulations.
The "advance notice of proposed rulemaking" is the first step toward what the industry hopes is a policy update. Many say those rules are
long overdue for reforms, especially as online and mobile banking plays an increasingly dominant role in deposit taking. Banks that do not attain "well-capitalized" status face restrictions on accepting brokered deposits, and an interest rate cap on deposits that they do accept.
The FDIC is weighing certain changes to the definition of brokered deposits, as well as its methodology for setting the deposit rate cap.
“Brokered deposit regulations affect every bank in this country and it’s our duty to our members and our members’ customers to try find a better approach to the rules,” said Rob Nichols, president and CEO of the American Bankers Association, in a statement. “We think they can be updated to reflect the realities of today’s marketplace and better fit how banks serve their customers.”
The FDIC is specifically asking whether there are deposits that should, or should not, be considered brokered and how to update its policy to reflect technology advancements in online banking. The ANPR also has a separate section asking whether the agency should change the interest rate cap it sets based on a national average.
The industry has 90 days to comment in response to the ANPR.
In September, FDIC Chairman Jelena McWilliams released a statement suggesting that the current brokered deposit rules may be outdated.
“Since the rules were put in place, the industry has seen significant changes in technology, business models, and product types, and later this year we will ask for public comment on how best to update the rules to reflect such changes,” she said.
Bankers argue the rate cap is largely based on what the biggest banks pay depositors whereas the rate limit should more closely consider the prevailing rates in a community bank's direct market, which can be higher. The FDIC is asking how to define a “normal market area” as part of its ANPR.
It is unclear how much the FDIC would ultimately change its rules to provide relief to banks, since FDIC staff have long defended the existing restrictions to prevent banks from using brokered deposits to fuel rapid growth. Several banks that failed in the 2008-2010 crisis had relied on brokered funds but then could not weather the losses from their overheated portfolio. Yet bankers argue those failures were because of bad loans, not because an institution accepted brokered funds.
FDIC staff have recently appeared more open to changes, but are adamant that brokered deposits carry risks.
“Throughout time, there is a linkage between institutions that have used brokered deposits and used high-rate deposits for excessive risk-taking and excessive growth,” said Rae-Ann Miller, associate director for the FDIC’s division of risk management supervision, during a meeting with community bankers in October.
Failed institutions with a lot of brokered deposits "have cost us a lot of money on the back end,” she added.
