The Federal Deposit Insurance Corporation's (FDIC) recent proposal on brokered deposits has come under scrutiny from a coalition of trade associations. In a comment letter submitted yesterday, these groups argued that the proposal violates the Administrative Procedure Act, which mandates federal agencies to justify their rules and allow for public input.
"The proposed rule, if adopted without significant changes, would be arbitrary and capricious on several grounds," stated representatives from the American Bankers Association, Bank Policy Institute, U.S. Chamber of Commerce, Financial Services Forum, Financial Technology Association, Independent Community Bankers of America, and SIFMA. They further criticized the FDIC for not justifying its shift in stance since 2021 or considering the costs to businesses operating under existing rules. Additionally, they noted that the proposal fails to evaluate its economic or legal impacts.
The FDIC's proposal aims to broaden what qualifies as "brokered" deposits, undoing previous reforms from 2020-2021. It seeks to expand the definition of deposit brokers and narrow primary-purpose exclusions while rescinding approvals for current non-brokered deposit arrangements.
The coalition expressed concern over potential financial implications. While initially designed to prevent weak banks from amassing high-rate deposits through third parties, they argue that the new proposal could unnecessarily include lower-risk deposits. This change could elevate banking costs and limit customer access to financial services.
Furthermore, they believe that the proposal contradicts Section 29 of the Federal Deposit Insurance Act by broadly defining brokered deposits and narrowly interpreting exclusions. The coalition emphasized that changes like requiring FDIC permission for certain non-brokered classifications conflict with existing laws.
Critics pointed out that the FDIC failed to provide adequate reasoning for reversing its 2021 regulations. This oversight does not meet the APA's standards for reasoned justification. They also highlighted how such changes could disrupt businesses reliant on current rules without offering alternatives that might reduce costs or disruptions.
In conclusion, due to a lack of supporting data and analysis for this proposal, critics have called for its withdrawal.