Final rules on brokered deposits, interest rate restrictions for some banks, to be considered by FDIC Board

The agency’s 2021 budget and two final rules – one on a combined regulation on brokered deposits and interest rate restrictions – highlight the agenda for the board of the federal insurer of bank deposits when it meets Tuesday.

The combined final rule on brokered deposits and interest-rate restrictions to be considered by the Federal Deposit Insurance Corp. (FDIC) Board follows up on proposals made a year ago

The brokered deposit portion of the rule would establish a framework for determining whether bank deposits made through placement arrangements qualify as brokered deposits. It is designed to analyze certain provisions of the “deposit broker” definition, including “facilitating” and “primary purpose.” It would also establish an application and reporting process with respect to the primary purpose exception. The application process would be available to insured depository institutions and third parties that wish to utilize the exception, according to the proposed rule summary.

In issuing the proposal, the agency said in December that the proposal would “modernize a regulatory framework built for a different era to remove regulatory disincentives to offering deposit accounts to customers through different channels.”

The portion on interest rate restrictions that apply to less than well capitalized insured depository institutions would amend the methodology for calculating the national rate and national rate cap for specific deposit products. The rule was proposed in August 2019.

Under the proposal, the national rate would be the weighted average of rates paid by all insured depository institutions on a given deposit product, for which data are available, where the weights are each institution’s market share of domestic deposits.

The proposal also notes that the national rate cap for particular products would be set at the higher of the 95th percentile of rates paid by insured depository institutions weighted by each institution’s share of total domestic deposits, or the proposed national rate plus 75 basis points. The agency said that the proposed rule would also greatly simplify the current local rate cap calculation and process by allowing less than well capitalized institutions to offer up to 90 percent of the highest rate paid on a particular deposit product in the institution’s local market area.

A second final rule to be considered by the board is on parent companies of industrial banks and industrial loan companies. In March, the board issued a proposal that would impose certain conditions and commitments for approval or non-objection to filings involving industrial banks or loan companies (ILCs) related to deposit insurance, change in control, or mergers. The proposed rule would apply to ILCs whose parent companies are not subject to consolidated supervision by the Federal Reserve Board.

Under the proposal, a covered parent company of an ILC would be required to enter into written agreements with the FDIC and the industrial bank to take a variety of actions. Those actions include addressing the company’s relationship with the industrial bank; requiring capital and liquidity support from the parent to the industrial bank; and establishing appropriate recordkeeping and reporting requirements.

Also up for action at the Tuesday meeting: the agency’s 2021 budget. A year ago, the FDIC adopted a $2.02 billion budget, which was a 1.3% decrease from the budget a year before that. A big part of the change: a $100 million decrease (to $75 million) in its receivership funding budget for the new year – a 57.1% decrease from 2019. Some interpreted that change as a projection for fewer bank troubles in 2020. Since the first of the year, three banks have failed; four banks failed in 2019.

The 2020 budget also cut staffing at the agency a net 160 positions, to 5,755. The staff level reflected reductions in examiner staffing (consistent with industry consolidation, the agency said) but held increases in large bank examiners and acquisitions services staff, according to the agency.

In addition to those action items (on which the board members will be voting), the board will also consider nine items under its “summary agenda” (on which no “substantive discussion” is expected, and the items will be considered in a single vote in a block).

The meeting is scheduled to get underway at 10 a.m. ET and will be live streamed via the Internet.

FDIC Board meeting agenda, Dec. 15, 2020