FDIC to issue proposal on brokered deposits by year-end, McWilliams says

WASHINGTON — The Federal Deposit Insurance Corp. plans to release a proposal by the end of 2019 to simplify rules around how it defines brokered deposits, FDIC Chairman Jelena McWilliams said Monday.

“We’re aiming by the end of the year to have a proposal out there,” McWilliams said, speaking to reporters after a Q&A at DC Fintech Week at the Georgetown University Law Center. “The question is, do people know when they’re insured? And with brokered deposits, that’s not always so clear.”

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The chairman acknowledged that with just over two months left in the year, the timetable would be demanding, especially with the agency planning to revamp enforcement of the Community Reinvestment Act, among other things.

“The agenda is very ambitious, frankly, but we have to update our stuff in the regulatory framework that has not been touched for 20 years,” McWilliams told reporters.

The FDIC’s proposal on brokered deposits has been long awaited by the banking industry, in particular by community banks. The core rule defining brokered deposits was written in the nineties, before online banking existed. The FDIC treats such deposits differently because they are viewed as potentially "hot" money that brokers can move from institution to institution, making them a less stable source of funding that can be rapidly withdrawn. Banks that are considered less than well-capitalized face restrictions on accepting additional brokered deposits.

But many bankers argue the current rule captures deposits that are not necessarily risky or come from an outside broker.

McWilliams has said that the FDIC’s goal is to simplify the rules, but has found it easier said than done.

“The broker deposit rules are so complex," she said. “We keep talking about simplification and everything I see in front of me looks even more complex than the complexity we have now.”