Federal Deposit Insurance Corporation Chairman Martin Gruenberg speaks at a Senate Banking Committee hearing.
Alison Robert/Bloomberg
The Federal Deposit Insurance Corporation has extended the comment period on a proposed brokered deposit limit that could force banks to reclassify large amounts of deposits.
The move comes after financial industry groups last month asked the FDIC to give them an additional 60 days to comment, saying the proposal could increase regulatory costs and disrupt existing business relationships. This was in response to the incident. Banks said the proposal would result in increased costs that would be passed on to customers and hurt underbanked communities.
The FDIC granted banks a 30-day extension until Nov. 21 to provide feedback on the brokered deposit proposal. The proposal would reverse the agency’s position on what constitutes brokered deposits and would impact a wide range of other industry participants, including providers and sponsors of so-called sweep programs, prepaid programs, co-branded deposit programs, and deposit platforms. It turns out.
The presidential election and possible leadership change at the FDIC could affect how the FDIC moves forward with its proposals, potentially posing a problem for regional banks facing difficulties attracting deposits. There is sex.
The proposal would reverse changes that favored the banking industry under rules enacted in 2020 under the Trump administration, which narrowed the definition of brokered deposits while making deposits regulated as brokered. It allowed modest expansion of the arrangement. FDIC Chairman Martin Gruenberg opposed the rule at the time, saying it posed an unreasonable risk to the financial system.
Gruenberg said in 2020 that under this change, “banks could rely on sophisticated, unaffiliated third parties for 100% of their deposits, without any deposit intermediation.” .
He said banks could form “multiple ‘exclusive’ third-party relationships to provide funding without any deposits being considered intermediaries.”
The FDIC’s 2020 rule changes have broad implications for lightly capitalized banks’ access to deposit funding, liquidity planning for banks that use brokered deposits, and the cost of federal deposit insurance.
The proposal would amend and expand the definition of “deposit broker” and modify two of the specified business relationships under the so-called “principal purpose” exception.
Additionally, changes have been made to the principal purpose exception notice and application process to determine when an insured depository institution may regain “agent institution” status under the limited exception to the mutual deposit cap. We plan to clarify this.
The proposal would change the definition of a deposit broker to be a third party who deposits deposits with “one or more” depository institutions. Currently, this definition covers brokers who hold deposits with “multiple” banks. The language change would also eliminate the so-called exclusive arrangement exception under the 2020 rules that helps third parties affiliated with banks avoid designation as deposit brokers.
