FDIC Brokered Deposit Rule Comment Period Extension

The Federal Deposit Insurance Corporation (FDIC) has announced an extension to the comment period for its proposed rulemaking concerning brokered deposit restrictions for undercapitalized insured depository institutions.

Understanding the Proposed Rule

The proposed rule aims to revise the FDIC's regulations regarding brokered deposits for institutions deemed less than well-capitalized. These revisions are intended to mitigate risks associated with this type of funding and enhance the overall stability of the banking system.

Critical areas of the proposed changes include (but are not limited to):

• Brokered Deposit Definition: "brokered deposit" and "deposit broker" are revised for greater precision, addressing loopholes and misinterpretations, especially regarding third-party allocators and fees.
• Primary Purpose Exception: The criteria for the primary purpose exception (allowing certain relationships to avoid brokered deposit restrictions) are significantly tightened. Changes include reducing the 25% test, eliminating the "enabling transactions" test, and adding new factors like fees and third-party involvement.
• Applications: The application process for the primary purpose exception is limited to insured depository institutions (IDIs) only, eliminating third-party applications.
• Reciprocal Deposit Exception: The process for institutions to regain "agent institution" status under the reciprocal deposit exception (allowing certain capped reciprocal deposits to avoid brokered deposit classification) has been clarified to address previous ambiguities.

The Significance of This Rulemaking

The impact of these regulatory changes will be felt across the financial sector, particularly by smaller banks and the fintechs that rely on them for their operations. The rule impacts:

• Access to Capital: The proposed modifications may alter the ease undercapitalized banks can secure funding.
• Lending Practices: Changes in funding mechanisms could potentially impact a bank's ability to extend credit to borrowers.
• Fintech Partnerships: It may become much more challenging for fintechs to work with small banks for lending, account creation, and other activities.

Call to Action: Submit Your Comments

The extended comment period offers a vital opportunity to provide input to the FDIC. The deadline for submitting comments has been extended to November 21, 2024. To ensure your voice is heard, please take the following steps:

Thorough Review: Carefully review the complete text of the proposed rule, which can be found here or at the bottom of this post.

Prepare a Well-Reasoned Comment: Formulate a concise and well-supported response outlining your perspective. Include specific examples and data to support your arguments.

Submit Your Comment: Submit your comments via one of the following methods:

• Agency Website: Here. Follow the instructions for submitting comments on the agency website.
• Email: comments@fdic.gov. Include RIN 3064-AF99 in the subject line of the message.
• Mail: James P. Sheesley, Assistant Executive Secretary, Attention: Comments—RIN 3064-AF99, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429.
• Hand-delivered Comments may be hand-delivered to the guard station at the rear of the 550 17th Street NW Building (located on F Street) on business days between 7 a.m. and 5 p.m.
• Public Inspection: Comments received, including any personal information provided, may be posted without change at this link.

Your participation in this process is critical to ensuring that the final rule reflects a balanced approach that addresses both regulatory concerns and the banking industry's needs.

Don't miss this opportunity to contribute to the ongoing dialogue!