The Federal Deposit Insurance Corporation (FDIC) has proposed changes to its brokered deposits rule, which the Bank Policy Institute (BPI) claims would increase costs and limit product availability for consumers. According to a comment letter filed by BPI, the proposal seeks to reverse significant amendments made in 2020 that accounted for technological advancements and evolving business practices. The revised definition could classify more deposits as "brokered," potentially raising costs for banks and third parties while limiting customer access to certain financial services.
Tabitha Edgens, BPI co-head of regulatory affairs, stated, "The proposal would make major changes to how banks classify their deposits without compelling justification. The FDIC appears to be using the brokered deposits rule as a multi-purpose tool to address a host of policy objectives, from liquidity management to partnerships between banks and fintechs. But the statute is a precision wrench, not a Swiss Army knife – the rules should be used for the specific purpose Congress intended."
The original restrictions on brokered deposits were enacted by Congress in response to the savings and loan crisis of the 1980s. These measures targeted troubled banks seeking short-term deposits through third-party brokers at higher-than-market interest rates. Over time, supervisors expanded their scrutiny even towards healthy banks.
The current proposal intends to undo changes adopted in 2020 and could lead to increased deposit insurance premiums among other consequences. Critics argue that it fails to consider its impact on the U.S. economy or provide adequate data supporting these revisions.
BPI suggests withdrawing what they see as an unjustified proposal due to several flaws such as an overly broad definition of "deposit broker" and burdensome processes that could create uncertainty for existing activities.
New research from BPI questions the rationale behind expanding the definition of brokered deposits. Their analysis suggests reclassifying sweep deposits may have significantly contributed to a $350 billion decline in reported brokered deposits after implementing changes in 2020.
In addition, BPI filed a joint letter with other trade groups highlighting legal concerns about deficiencies within this proposal.
The Bank Policy Institute represents universal banks along with regional ones across America while providing research on regulatory policies impacting financial services including cybersecurity issues among others.
Tara Payne from Bank Policy Institute can be contacted at tara.payne@bpi.com for further information.