The Federal Deposit Insurance Corporation yesterday proposed requiring banks to disclose more detailed information about their use of brokered deposits to ensure their safety and soundness.
Brokered deposits – high-value funds that banks obtain through third-party intermediaries or brokers – are a source of concern for regulators as they are more interest rate sensitive and less stable than deposits from retail customers.
A lender’s risk profile is often increased by brokered deposits, which can encourage rapid growth in risk assets. In a statement accompanying the proposal, FDIC Chairman Martin J. He said the potential losses would be even greater.
The proposed rules aim to ensure that banks accurately report the level of brokered deposits in their financial statements and expand the definition of “deposit broker” to capture many deposit placement arrangements.
“First Republic Bank, which collapsed in May 2023 due to the ripple effects of the failure of Silicon Valley Bank and caused a major run on uninsured deposits, has no problem with narrowing the scope of this rule. That’s one example,” Gruenberg added.
According to the FDIC, various studies have shown that reliance on brokered deposits is associated with a higher likelihood of bank failure.
Brokered deposits rose 86% annually to $1.3 trillion in the fourth quarter of 2023, the highest level since 1984, according to FDIC data. Rating agency S&P Global cited intermediary deposits as a factor when it downgraded several U.S. regional banks last summer.
Rob Nichols, president and chief executive officer of the American Bankers Association, called for “drastic measures that limit access to liquidity sources while penalizing banks for pursuing funding sources to meet community needs. ” expressed disappointment.
But the pressure group Better Markets praised the FDIC’s move to rescind a 2020 rule that made it easier for banks to accept brokered deposits and narrowed the types of deposit-related activities that are considered intermediaries.
“The 2020 brokered deposit rules created huge loopholes that fintech and crypto companies exploited at the expense of the safety and soundness of the banking system,” said Shayna Olesiuk, Director of Banking Policy at Better Markets. ” he said. This loophole is unjust and dangerous, increasing the likelihood of liquidity crises, bank failures, and taxpayer bailouts, including those seen in spring 2023. ”
“We support further inclusion in the definition of brokered deposits of all types of dangerous ‘hot money’ that could amplify or worsen the crisis, and we support supervisory penalties for banks that rely too heavily on brokered deposits. I support imposing this,” he added.
At yesterday’s meeting, the FDIC board advanced several policy proposals, including requiring large asset managers to meet new limits before buying large amounts of stock in publicly traded banks. The regulator also approved a request for information to gather valuable input from the public to inform future decisions on protecting the public from the risks associated with concentration in risky deposit structures.
The American Bankers Association questioned the FDIC board’s decision to advance multiple policy proposals in one meeting, noting that the agency’s leadership will soon be changing.
Gruenberg announced his intention to resign in May, and the Senate is currently considering the nomination of Commodity Futures Trading Commission Commissioner Christie Goldsmith Romero to succeed President Biden.
“Given the pending change in FDIC leadership, we question the need to proceed with an unusually short comment period on a series of unrelated regulatory changes that clearly lack consensus support within the FDIC. Nichols said. “We will review today’s FDIC action with our members and provide comments in the coming weeks.”
