Limited Exception for a Capped Amount of Reciprocal Deposits From Treatment as Brokered Deposits, 48562-48569 [2018-20303]
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48562
Proposed Rules
Federal Register
Vol. 83, No. 187
Wednesday, September 26, 2018
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 327 and 337
RIN 3064–AE89
Limited Exception for a Capped
Amount of Reciprocal Deposits From
Treatment as Brokered Deposits
Federal Deposit Insurance
Corporation (FDIC).
ACTION: Notice of proposed rulemaking
and request for comments.
AGENCY:
The FDIC seeks comment on
a notice of proposed rulemaking to
conform its current regulations that
implement brokered deposits and
interest rate restrictions with recent
changes to section 29 of the Federal
Deposit Insurance Act made by section
202 of the Economic Growth, Regulatory
Relief, and Consumer Protection Act
related to reciprocal deposits, which
took effect on May 24, 2018. Conforming
amendments to the FDIC’s regulations
governing deposit insurance
assessments are also being proposed.
This rulemaking is the first part of a
two-part effort to revisit the brokered
deposit rules. The FDIC is currently
working on the second part, which is
planned for later this year and which
will seek comment on the brokered
deposit regulations more generally. We
encourage comments not related to the
implementation of section 202 to be
submitted as part of the broader
rulemaking effort.
DATES: Comments on the rules must be
received by October 26, 2018.
ADDRESSES: You may submit comments,
identified by RIN 3064–AE89, by any of
the following methods:
• Agency Website: https://
www.FDIC.gov/regulations/laws/
federal/.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments/Legal
ESS, Federal Deposit Insurance
Corporation, 550 17th Street NW,
Washington, DC 20429.
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• Hand Delivery/Courier: 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 7:00 a.m. and
5:00 p.m.
• Email: comments@FDIC.gov.
Instructions: Comments submitted
must include ‘‘FDIC’’ and ‘‘RIN 3064–
AE89.’’ Comments received will be
posted without change to https://
www.FDIC.gov/regulations/laws/
federal/, including any personal
information provided.
FOR FURTHER INFORMATION CONTACT:
Division of Risk Management
Supervision—Thomas F. Lyons, Chief,
Policy and Program Development, (202)
898–6850, tlyons@fdic.gov; Judy Gross,
Senior Policy Analyst, (202) 898–7047,
jugross@fdic.gov; Division of Insurance
and Research—Ashley Mihalik, Senior
Policy Analyst, (202) 898–3793,
amihalik@fdic.gov; Legal Division—
Vivek V. Khare, Counsel, (202) 898–
6847, vkhare@fdic.gov; Thomas Hearn,
Counsel, (202) 898–6967; thearn@
fdic.gov.
SUPPLEMENTARY INFORMATION:
I. Policy Objectives
The policy objective of this proposed
rule is to implement section 202 of the
Economic Growth, Regulatory Relief,
and Consumer Protection Act, codified
in 12 U.S.C. 1831f, which took effect on
May 24, 2018.1 The main effect of the
legislation and this proposed rule is to
permit FDIC-insured financial
institutions, under certain
circumstances, to except certain
amounts of reciprocal deposits from
treatment as brokered deposits.
II. Background
The Economic Growth, Regulatory
Relief, and Consumer Protection Act
(the Act) was enacted on May 24, 2018.2
Section 202 of the Act amends section
29 of the Federal Deposit Insurance Act
(FDI Act) 3 to except a capped amount
of reciprocal deposits from treatment as
brokered deposits for certain insured
depository institutions. In addition,
section 202 ensures that the interest rate
restrictions in section 29 remain
applicable to any deposit, including
1 Public Law 115–174, 132 Stat. 1296–1368
(2018).
2 Public Law 115–174, 132 Stat. 1296–1368
(2018).
3 See 12 U.S.C. 1831f.
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reciprocal deposits, whether or not they
fall under the limited exception. Section
202 was effective immediately upon
enactment.
As more fully discussed below, wellcapitalized institutions are not restricted
from accepting or soliciting brokered
deposits and have no restrictions on the
rates they pay on deposits. However,
under section 29, less than wellcapitalized institutions may not accept
or solicit brokered deposits and may not
offer rates on any deposits that are
significantly higher than the prevailing
rates in the institution’s normal market
area. Section 29 defines the term
‘‘deposit broker’’ and provides a list of
exclusions to that term. Funds obtained
through a deposit broker are considered
brokered deposits. Section 202 amends
section 29 to effectively provide that a
capped amount of reciprocal deposits
will not be considered funds obtained
through a deposit broker for certain
insured depository institutions, and
thus such deposits will be nonbrokered. Reciprocal deposits that do
not meet the section 202 exception are
brokered deposits under section 29.
At this time, institutions with
reciprocal deposits that meet section
202’s limited exception can refer to the
Supplemental Instructions provided as
part of the June 30, 2018, Call Report
Instructions for information on
reporting reciprocal deposits under the
new law.4 The Federal Financial
Institutions Examination Council
(FFIEC) has indicated that it anticipates
issuing additional instructions regarding
the application of section 202 to
reciprocal deposits for purposes of
reporting in the Call Report for
September 30, 2018.
This rulemaking is the first part of a
two-part effort to revisit the brokered
deposit rules. The FDIC is currently
working on the second part, which is
planned for later this year and will seek
comment on the brokered deposit
regulations more generally.
A. Section 29 of the FDI Act
Under section 29 of the FDI Act, an
insured depository institution is
restricted from accepting deposits by or
through a deposit broker unless the
institution is well capitalized for
Prompt Corrective Action (PCA)
4 FFIEC Supplemental Instructions, Call Report
Date, p. 2, June 30, 2018. https://www.fdic.gov/
news/news/financial/2018/fil18039a.pdf.
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purposes.5 The FDIC may waive this
restriction if the insured depository
institution is adequately capitalized;
however, the restriction cannot be
waived if the institution is
undercapitalized.6 Section 29 also
imposes restrictions on the deposit
interest rates that an insured depository
institution may offer if the institution is
not well capitalized.7 These interest rate
restrictions cannot be waived. Section
337.6 of the FDIC’s Rules and
Regulations implements section 29 of
the FDI Act.8 Through this regulation,
the FDIC has largely tracked the
statutory definition of ‘‘deposit broker’’
and its exceptions.
A ‘‘deposit broker,’’ as defined by
section 29 of the FDI Act, includes ‘‘any
person engaged in the business of
placing deposits, or facilitating the
placement of deposits, of third parties
with insured depository institutions or
the business of placing deposits with
insured depository institutions for the
purpose of selling interests in those
deposits to third parties. . . .’’ Under
the FDIC’s regulations, a ‘‘brokered
deposit’’ is thus defined as a deposit
accepted through a ‘‘deposit broker.’’ 9
The definition of ‘‘deposit broker’’ is
subject to ten statutory exceptions in
section 29 10 and one regulatory
exception.11
B. Reciprocal Deposits
The reciprocal deposit arrangement is
based upon a network of banks that
place funds at other participating banks
in order for depositors to receive
insurance coverage for the entire
amount of their deposits.12 In these
arrangements, institutions within the
network are both sending and receiving
identical amounts of deposits
simultaneously. Because reciprocal
arrangements can be complex, and
involve numerous banks, they are often
managed by a third-party network
sponsor. As a result of this arrangement,
the institutions themselves (along with
the network sponsors) are ‘‘in the
business of placing deposits, or
facilitating the placement of deposits, of
third parties with insured depository
institutions,’’ 13 and the involvement of
deposit brokers within the reciprocal
U.S.C. 1831f(a).
U.S.C. 1831f(c).
7 12 U.S.C. 1831f.
8 12 U.S.C. 1831f(a).
9 12 CFR 337.6(a)(2).
10 12 U.S.C. 1831 f(g)(2), (i).
11 12 CFR 337.6(a)(5)(ii)(J); see also, 57 FR 23933–
01.
12 See FDIC Advisory Opinion No. 03–03 (July 29,
2003).
13 Excerpt of the definition of ‘‘deposit broker.’’
12 U.S.C. 1831f.
network means the deposits are
brokered deposits.14
For assessment purposes, reciprocal
deposits have been treated more
favorably than other types of brokered
deposits. In 2009, through rulemaking,
the FDIC amended its risk-based
assessment rate methodology for small
institutions, i.e., insured depository
institutions with less than $10 billion
dollars in total assets.15 In that
rulemaking, the FDIC added an
‘‘adjusted brokered deposit ratio’’ that
applied to small institutions that were
well capitalized and well rated. This
ratio measured the extent to which
significant reliance on brokered deposits
helped to fund rapid asset growth. After
consideration of comments received in
response to the proposed rule,
reciprocal deposits were not included as
part of the adjusted brokered deposit
ratio. In its final rule, the FDIC stated
that ‘‘[it] recognizes that reciprocal
deposits may be a more stable source of
funding for healthy banks than other
types of brokered deposits and that they
may not be as readily used to fund rapid
asset growth.’’ 16 When the FDIC
updated its risk-based assessment rate
methodology for established small
banks in 2016, it replaced the adjusted
brokered deposit ratio with a brokered
deposit ratio.17 The new ratio, which
measures significant reliance on
brokered deposits (rapid asset growth is
considered as a separate measure) and
applies to all established small banks,
continues to exclude reciprocal deposits
for institutions that are well capitalized
and well rated.18
III. Discussion of Treatment of
Reciprocal Deposits Under the Act
Prior to enactment of the Act, all
reciprocal deposits were classified as
brokered deposits.19 Section 202 of the
Act amends section 29 of the FDI Act to
except a capped amount of reciprocal
deposits from treatment as brokered
deposits for certain insured depository
institutions. Section 202’s amendments
took effect upon enactment on May 24,
2018, and the FDIC is proposing to
amend its regulations to conform with
the statutory amendments.
Section 202 defines ‘‘reciprocal
deposits’’ as ‘‘deposits received by an
5 12
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14 See
FDIC’s 2011 Study on Core and Brokered
Deposits, issued July 2011, Sections IV.E. and
VIII.E.
15 79 FR 9525 (March 4, 2009).
16 Id. at 9532.
17 Generally, an established small bank is a small
institution that has been federally insured for at
least five years. See 81 FR 32180 (May 20, 2016).
18 See 12 CFR 327.16(a)(1)(ii).
19 See FDIC’s 2011 Study on Core and Brokered
Deposits, issued July 2011, Section IV.
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48563
agent institution through a deposit
placement network with the same
maturity (if any) and in the same
aggregate amount as covered deposits
placed by the agent institution in other
network member banks.’’ Network
member banks may receive other
deposits through a network such as (1)
deposits received without the
institution placing into the network a
deposit of the same maturity and same
aggregate amount (sometimes referred to
as ‘‘one-way network deposits’’) and (2)
deposits placed by the institution into
the network where the deposits were
obtained, directly or indirectly, by or
through a deposit broker. Such other
network deposits meet the definition of
brokered deposits but would not meet
the definition of reciprocal deposits and
thus would not be eligible to be
excepted from an institution’s brokered
deposits under section 202.
In this rulemaking, the FDIC is
proposing to implement section 202’s
limited exception by incorporating these
statutory definitions into section
337.6(e)(2) of the brokered deposit rules,
without change. These definitions must
be satisfied in order for a capped
amount of reciprocal deposits to be
excepted from treatment as brokered
deposits.
A. Deposit Placement Network, Covered
Deposits, and Network Member Bank
The term ‘‘deposit placement
network’’ is defined in section 202 as a
network in which an insured depository
institution participates, together with
other insured depository institutions,
for the processing and receipt of
reciprocal deposits. Institutions that are
members of the deposit placement
network are ‘‘network member banks.’’
The deposits that an ‘‘agent
institution’’ places at other banks in
return for reciprocal deposits are termed
‘‘covered deposits’’ under section 202.
The term covered deposit is defined as
a deposit that (1) is submitted for
placement through a deposit placement
network and (2) does not consist of
funds that were obtained for the agent
institution, directly or indirectly, by or
through a deposit broker before
submission for placement through the
deposit placement network.
B. Agent Institution
Consistent with section 202, proposed
section 337.6(e)(2) defines ‘‘agent
institution’’ as an insured depository
institution that places a covered deposit
through a deposit placement network at
other insured depository institutions in
amounts that are less than or equal to
the standard maximum deposit
insurance amount, and specifies the
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interest rate to be paid for such
amounts, if the insured depository
institution:
• Is well capitalized 20 and has a
composite condition of outstanding
(CAMELS ‘‘1’’) or good (CAMELS ‘‘2’’)
when most recently examined under
section 10(d) of the FDI Act (described
as ‘‘well rated’’); 21
• has obtained a waiver pursuant to
section 29(c) of the FDI Act; or
• does not receive an amount of
reciprocal deposits that causes the total
amount of reciprocal deposits held by
the agent institution to be greater than
the average of the total amount of
reciprocal deposits held by the agent
institution on the last day of each of the
four calendar quarters preceding the
calendar quarter in which the agent
institution was found not to have a
composite condition of outstanding or
good or was determined to be not well
capitalized.
C. Caps Applicable to Agent Institutions
Consistent with section 202, under
the proposed regulation, an ‘‘agent
institution’’ can except reciprocal
deposits from being classified as
brokered deposits up to its applicable
statutory caps, as explained below.
General Cap
An agent institution may except
reciprocal deposits up to the lesser of
the following amounts (referred to as the
general cap) from being classified as
brokered deposits: 22
• $5 billion or
• An amount equal to 20 percent of
the agent institution’s total liabilities.
Reciprocal deposits in excess of the
general cap, as well as those reciprocal
deposits that do not meet section 202’s
limited exception, are brokered
deposits.
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Special Cap
A special cap applies if the institution
is either not well rated or not well
capitalized. In this case, the institution
may meet the definition of ‘‘agent
institution’’ by maintaining its
reciprocal deposits at or below the
special cap, which is the average
20 See generally, 12 CFR part 325, subpart B or 12
CFR part 324, subpart H (FDIC); 12 CFR part 208
(Board of Governors for the Federal Reserve
System); 12 CFR part 6 (Office of the Comptroller
of the Currency). 12 U.S.C. 1831o. ‘‘Well
capitalized’’ is already defined in 12 CFR
337.6(a)(3)(i).
21 The effective date of a CAMELS composite
rating is the date of written notification to the
institution by its primary federal regulator or state
authority of its supervisory rating. See e.g., 12 CFR
327.4(f).
22 See FFIEC Supplemental Instructions, Call
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amount of reciprocal deposits held at
quarter-end during the last four quarters
preceding the quarter that the
institution fell below well capitalized or
well rated. The FDIC notes that section
202 does not provide a date by which
an institution must demonstrate that its
amount of reciprocal deposits are within
the special cap. The FDIC is considering
evaluating whether an institution’s
reciprocal deposits meet the special cap
based on information reported in its Call
Reports. For an institution that is
determined to fall below well rated, the
FDIC would evaluate its compliance
with the special cap based on Call
Report data submitted for the reporting
date immediately following when the
determination is made. The FDIC seeks
comment on any unintended
consequences this may cause to
institutions.
Application of Statutory Caps
Below are descriptions of how the two
statutory caps would apply to an agent
institution based upon its capital and
composite ratings.
1. Well capitalized and well rated.
Institutions that are both well
capitalized and well rated can have nonbrokered reciprocal deposits up to the
general cap. Any amount of reciprocal
deposits over the general cap will no
longer meet the limited exception and
therefore that amount would be
considered to be ‘‘brokered deposits.’’
Well-capitalized institutions can accept
all brokered deposits, including
reciprocal deposits that are brokered
deposits, without any restrictions.
2. Not well capitalized or not well
rated. Institutions that are either not
well capitalized or not well rated are
subject to the lesser of either the special
cap or the general cap. The amount of
reciprocal deposits within the
institution’s applicable cap would not
be considered brokered deposits. In no
event, however, can an institution’s
non-brokered reciprocal deposits exceed
the general cap. With respect to an
institution that is well capitalized but
not well rated, if it received reciprocal
deposits above the special cap, it would
no longer meet the definition of ‘‘agent
institution.’’ In this situation, an
institution would need to decide
whether to (1) retain all of its reciprocal
deposits and report them as brokered
deposits (assuming the institution was
well capitalized 23), or (2) lower the
23 12 U.S.C. 1831f(c). Institutions that are
adequately capitalized may seek a waiver from the
FDIC to accept brokered deposits. Waivers under
section 29(c) are only available (1) on a case-by-case
basis, (2) upon application to the FDIC, (3) to
adequately capitalized institutions, and (4) upon a
finding that the acceptance of such deposits does
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amounts of its reciprocal deposits to
within the special cap by the end of the
quarter that it is notified that it is no
longer well rated, in which case all of
the institution’s reciprocal deposits
could be excepted from its brokered
deposits. An institution that is less than
adequately capitalized or adequately
capitalized without a waiver would
have the option to lower its reciprocal
deposits to within the special cap by the
end of the quarter for which, in the
ordinary course, the change in capital
status is reported, or work with its
primary federal regulator to establish a
supervisory plan for addressing
reciprocal deposits. The FDIC requests
comment on other ways an institution
that is not well rated or not well
capitalized could manage its holdings of
reciprocal deposits in excess of the
special cap, consistent with the
applicable provisions of section 202 so
that its reciprocal deposits would be
treated as non-brokered.
D. Example of Section 202’s
Applicability
A well rated and well capitalized
community bank (‘‘the Bank’’) has a
banking relationship with its local
municipality. The municipality wishes
to place deposits in excess of the
standard maximum deposit insurance
amount at the Bank. In an effort to
provide insurance coverage for the
entire amount of the deposit, the Bank
offers the municipality the option to
place its deposits through a deposit
placement network at a specified
interest rate.
In this case, the Bank is an ‘‘agent
institution’’ because it is both well rated
and well capitalized. After establishing
itself as an ‘‘agent institution,’’ the Bank
must next determine whether the
municipal deposits that it wishes to
submit into the deposit placement
network are covered deposits. If the
deposits are placed directly by the
municipality, without any assistance of
a third-party, the deposits meet the
definition of a ‘‘covered deposit.’’
Next, if the municipal deposits are
‘‘covered deposits,’’ to meet the
statutory definition of ‘‘reciprocal
deposits,’’ the institution must receive
deposits with the same maturity (if any)
and in the same aggregate amount as the
covered deposits it placed with other
network banks. If the definitional
framework set forth in section 202 is
satisfied, the Bank may except an
amount of the deposits it receives from
not constitute an unsafe or unsound practice with
respect to such institution. Less than adequately
capitalized institutions (undercapitalized or
significantly undercapitalized institutions) are not
eligible to seek a waiver from the FDIC.
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the deposit network—up to the general
cap—from treatment as brokered
deposits.
In contrast to the example described
above, if the Bank places deposits
obtained by or through the assistance of
deposit broker into a deposit placement
network, then those deposits would not
meet the definition of a ‘‘covered
deposit.’’ As a result, deposits that the
Bank receives in exchange for its
brokered deposits from other network
member banks would not qualify as
‘‘reciprocal deposits’’ and therefore
would not meet section 202’s limited
exception.
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E. Conforming Assessments
Amendments
The FDIC is proposing to make
conforming amendments to its
assessments regulations to be consistent
with the statutory definition of
reciprocal deposits. Prior to enactment
of section 202, all reciprocal deposits as
defined in the assessment regulations
met the definition of brokered deposits.
Because section 202 excepts certain
reciprocal deposits from treatment as
brokered deposits, the FDIC is
proposing to replace the current
definition of ‘‘reciprocal deposits’’ in
section 327.8(q) with a new term,
‘‘brokered reciprocal deposit.’’ A
‘‘brokered reciprocal deposit’’ is a
‘‘reciprocal deposit’’ as defined under
section 202, and proposed section
337.6(e)(2)(v), that does not meet the
statute’s limited exception (e.g.,
deposits over the applicable caps
discussed above). The FDIC is also
proposing to make conforming
amendments to sections 327.16(a)(1)(ii)
and 327.16(e)(3), which reference
reciprocal deposits.
For assessment purposes, ‘‘brokered
reciprocal deposits’’ will continue to be
excluded from the brokered deposit
ratio for established small institutions
that are well capitalized and well
rated.24 For new small banks and large
and highly complex banks that are less
than well capitalized or not well rated,
‘‘brokered reciprocal deposits’’ will
continue to be included in an
institution’s total brokered deposits for
the brokered deposit adjustment.25
24 The brokered deposit ratio may increase
assessment rates for established small banks with
brokered deposits greater than 10 percent of total
assets. Since 2009, when the ratio was first used as
one of the financial measures used to determine an
established small bank’s assessment rate, the ratio
has excluded reciprocal deposits from brokered
deposits if the bank is well capitalized and well
rated. See 12 CFR 327.16(a)(1)(ii).
25 The brokered deposit adjustment applies to all
new small institutions in Risk Categories II, III, and
IV, and all large and all highly complex institutions,
except large and highly complex institutions
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The FDIC notes that the statutory
definition of ‘‘reciprocal deposit’’ is
substantially similar to the current
regulatory definition in Part 327, with
one difference. Section 202’s definition
of ‘‘reciprocal deposits’’ is limited to
funds obtained from a deposit
placement network in exchange for
funds placed into the network that meet
the definition of ‘‘covered deposits,’’
which excludes funds that were
obtained, directly or indirectly, by or
through a deposit broker before
submission for placement through the
deposit placement network. As such,
funds that do not meet the statutory
definition of ‘‘reciprocal deposit’’
because they are obtained in exchange
for funds that the institution acquired
by or through a deposit broker are
‘‘brokered deposits’’ and would not
meet the proposed definition of
‘‘brokered reciprocal deposits.’’
The FDIC seeks comment on the
extent to which institutions may be
affected by the FDIC’s proposal to
conform the definition of reciprocal
deposits for assessment purposes with
the definition provided in section 202.
F. Interest Rates
Section 202 applies the statutory
interest rate restrictions under section
29 to all reciprocal deposits. More
specifically, section 202 amends section
29(e) of the FDI Act by ensuring that the
interest rate restrictions apply to less
than well capitalized banks that accept
reciprocal deposits.26 As a result,
section 202 confirms that the current
statutory and regulatory rate restrictions
for less than well capitalized
institutions continue to apply to any
deposit, including a reciprocal deposit
that is a covered deposit.27 To ensure
consistent treatment of the interest rate
restrictions under section 202, the FDIC
is proposing conforming amendments to
section 337.6(b)(2)(ii) of its rules and
regulations.
IV. Expected Effects
As noted previously, section 202 of
the Act took effect upon enactment, and
the proposed rule would conform part
337 with the legislation and align the
assessment rules with the statute’s
definition of ‘‘reciprocal deposits.’’ The
proposed rule applies to all FDICinsured depository institutions. As of
(including new large and new highly complex
institutions) that are well capitalized and have a
CAMELS composite rating of 1 or 2. The brokered
deposit adjustment can increase assessments for
institutions that have brokered deposits in excess of
10 percent of domestic deposits. See 12 CFR
327.16(e)(3).
26 12 U.S.C. 1831f(h).
27 12 U.S.C. 1831f(g)(3) and (e).
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48565
March 31, 2018, there were 5,616 FDICinsured institutions. Of these, 2,528
institutions report having brokered
deposits, which totaled $980 billion. Of
the institutions reporting brokered
deposits, 1,185 institutions also report
having reciprocal deposits, totaling $48
billion.
Benefits
The proposed rule could affect
deposit insurance assessments for a
small number of FDIC-insured
institutions. As discussed in Section II:
Background, the brokered deposit ratio
is one of the financial measures used to
determine assessment rates for
established small banks. The brokered
deposit ratio may increase assessment
rates for established small banks with
brokered deposits greater than 10
percent of total assets.28 Among these
banks, those that are well capitalized
and well rated can already deduct
reciprocal deposits from brokered
deposits and generally would not be
affected by the proposed rule, for
assessment purposes.29 Furthermore,
the proposed rule would not affect the
assessment rates of banks that do not
have reciprocal deposits or whose
brokered deposits comprise less than 10
percent of total assets. The FDIC
estimates that fewer than ten (0.178
percent) small FDIC-insured institutions
that are either not well capitalized or
not well rated (or both) could have a
lower assessment rate under the
proposed rule if their reciprocal
deposits are excepted from brokered
deposits.30 For large institutions,
generally insured depository
institutions with greater than $10 billion
in total assets, the proposed rule may
alter the core deposit ratio, resulting in
a change in the bank’s assessment.31
The FDIC estimates that 20 (0.356
percent) FDIC-insured institutions could
have a lower assessment due to the
effect of the proposed rule on their core
deposit ratio, if their reciprocal deposits
are excepted from treatment as
brokered. Based on data as of March 31,
2018, the FDIC estimates that no more
than 30 institutions would have reduced
assessment rates, all else equal, and the
FDIC’s aggregate assessment revenue
28 All else equal, a higher brokered deposit ratio
will result in a higher assessment rate.
29 See 12 CFR 327.16(a)(1)(ii).
30 FDIC Call Report, March 31, 2018.
31 The core deposit ratio applies to large and
highly-complex institutions and is measured as
domestic deposits, excluding brokered deposits and
uninsured non-brokered time deposits, divided by
total liabilities. Reciprocal deposits that are
brokered reciprocal deposits will continue to be
excluded from the ratio. See 12 CFR 327.16(b) and
Appendix B.
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would be reduced by an estimated $4.3
million annually.
Adequately capitalized institutions
may also benefit from the proposed rule
through a reduction in administrative
costs. Under existing regulations, these
institutions must seek and receive a
regulatory waiver from the FDIC in
order to accept brokered deposits.32 The
proposed rule would allow these
institutions that previously accepted
reciprocal deposits to continue to
receive reciprocal deposits up to the
lesser of the general or special cap
without requesting a waiver. This
allowance results in a de minimis
savings of administrative expenses for
affected institutions. The number of
institutions that may benefit from this
potential reduction in administrative
costs is difficult to accurately estimate
with available data because it depends
on the specific financial conditions of
each bank, fluctuating market
conditions for reciprocal deposits, and
future management decisions.
Undercapitalized institutions may
also benefit from the proposed rule by
accepting reciprocal deposits up to the
lesser of either the general or special
cap, even though they are otherwise
prohibited from receiving brokered
deposits.33 Under existing regulations,
undercapitalized institutions cannot
solicit or accept any reciprocal deposits
because all reciprocal deposits are
treated as brokered deposits. Because
the proposed rule excepts a certain
amount of reciprocal deposits from
treatment as brokered, undercapitalized
institutions that, when better
capitalized, previously accepted
reciprocal deposits may now be allowed
to receive reciprocal deposits up to the
lesser of the general or special cap
despite being undercapitalized. If
undercapitalized institutions can
receive reciprocal deposits, the result
may be increased utilization of
reciprocal deposits in the future.
However, this effect is difficult to
estimate with available data because the
decision to receive reciprocal deposits
depends on the specific financial
conditions of each bank, fluctuating
market conditions for reciprocal
deposits, and future management
decisions.
There are 2,528 (45 percent)
institutions that report holding some
amount of brokered deposits and 1,185
(21 percent) that report holding some
amount of reciprocal deposits. The
changes could affect some metrics that
rely on the amount of brokered deposits
reported on the Call Report, such as:
32 12
33 12
U.S.C. 1831f(c); 12 CFR 337.6(c).
CFR 337.6(b).
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• Net Noncore Funding Dependence
Ratio
• Brokered Deposits Maturing in less
than year to Brokered Deposits Ratio
• Brokered Deposits to Deposits Ratio
• Listing Service and Brokered Deposits
to Deposits Ratio
• Reciprocal Brokered Deposits to Total
Brokered Deposits Ratio
Cost
With regards to the difference in the
current regulatory definition of
‘‘reciprocal deposits’’ for assessment
purposes, which was added pursuant to
the FDIC’s assessment authority under
section 7 of the FDI Act, and the
statutory definition of reciprocal
deposits that was added to section 29 of
the FDI Act, the FDIC notes that banks
do not report data on the amount (if
any) of deposits that were obtained,
directly or indirectly, by or through a
deposit brokered before submission for
placement through the deposit
placement network. As a result, the
FDIC cannot estimate whether this
change to align the assessment
regulation definition of ‘‘reciprocal
deposits’’ with the statutory definition
of that term in section 29 of the FDI Act
would affect the amount of reciprocal
deposits that a bank would report or
whether it would affect any bank’s
assessment rate.
With regards to costs to the Deposit
Insurance Fund, the FDIC estimates
that, assuming all currently reported
reciprocals align with the statutory
definition, all else equal, the FDIC’s
aggregate assessment revenue would be
reduced by an estimated $4.3 million
annually. Additional reduced
assessment revenue could occur if
institutions shift their funding mix away
from funding sources that affect
assessment rates, such as brokered
deposits, towards reciprocal deposits.
Historically, when resolving failed
institutions, the FDIC has found that
potential acquiring institutions have
generally been unwilling to pay a
premium for reciprocal deposits,
typically treating them consistent with
other brokered deposits. It is not clear
whether reciprocal deposits that are no
longer considered brokered as a result of
section 202 would be viewed by
potential acquiring institutions as more
akin to traditional retail deposits for
purposes of warranting a premium. As
a result, the FDIC requests comment on
whether these non-brokered reciprocal
deposits would be considered
differently in the failing bank context.
Additionally, the proposed rule could
pose some additional regulatory costs
associated with changes to internal
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systems or processes, or changes to
reporting requirements.
V. Alternatives
The FDIC considered alternatives to
the proposed rule but believes that the
proposed amendments represent the
most appropriate option. In particular,
the FDIC considered whether a
rulemaking implementing section 202
was necessary or appropriate. Section
202’s amendments to section 29 became
effective upon the Act’s enactment on
May 24, 2018, so one view considered
was whether a rulemaking was
necessary to implement the
amendments. However, the FDIC
believes that conforming section 337.6
with section 202’s amendments will
remove confusion that might arise if
interested parties only consult section
337.6 for requirements related to
brokered deposits.
Section 202 did not address the
assessment rules in part 327 with
respect to reciprocal deposits. However,
the definition of ‘‘reciprocal deposits’’
in part 327 varies with the definition of
that term in section 202. As an
alternative, the FDIC considered
whether it should continue to use the
existing definition of ‘‘reciprocal
deposits’’ for assessment purposes.
However, the FDIC is concerned that
having two different definitions of
‘‘reciprocal deposits’’ could cause
confusion as well as undue burden in
the industry, particularly for reporting
purposes.
VI. Request for Comment
The FDIC seeks comment on its
proposal to conform its current
regulations that implement brokered
deposit and interest rate restrictions
with recent changes to section 29 made
by section 202 of the Act. As noted
earlier, this notice of proposed
rulemaking is the first part of a two-part
effort to revisit the brokered deposit
rules. The FDIC is currently working on
the second part, which is planned for
later this year and which will seek
comment on the brokered deposit
regulations more generally. We
encourage comments not related to the
implementation of section 202 to be
submitted as part of the broader
rulemaking effort. The FDIC seeks
comment on all aspects of this proposed
rule and in particular the following
questions that were provided in
previous sections of this proposal.
• As indicated above, for an
institution that is determined to not be
well rated and can only meet the ‘‘agent
institution’’ definition by maintaining
its reciprocal deposits at or below the
special cap, the FDIC is considering
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evaluating this issue based on Call
Report Data submitted for the reporting
date immediately following when the
determination is made. The FDIC seeks
comment on any unintended
consequences this approach may cause
to institutions.
• The FDIC seeks comment on other
ways an institution that is not well rated
or not well capitalized could manage its
holdings of reciprocal deposits in excess
of the special cap, consistent with the
applicable provisions of section 202’s
definition of ‘‘agent institution,’’ so that
its reciprocal deposits would be treated
as non-brokered.
• The FDIC seeks comment on the
extent to which institutions may be
affected by the FDIC’s proposal to
conform the definition of reciprocal
deposits for assessment purposes with
the definition provided in section 202.
• The FDIC requests comment on
whether reciprocal deposits that are no
longer considered brokered deposits as
a result of section 202 would be viewed
by a potential acquiring institution
bidding on the deposits of a failed
institution the same way it views
traditional retail deposits for which a
premium would be offered.
• The FDIC seeks comments on how
the regulations should apply to de novo
institutions that lack four prior quarters
of reciprocal deposits to calculate the
special cap.
VII. Solicitation of Comments on Use of
Plain Language
Section 722 of the Gramm-LeachBliley Act, Public Law 106–102, 113
Stat. 1338, 1471 (Nov. 12, 1999),
requires the Federal banking agencies to
use plain language in all proposed and
final rules published after January 1,
2000. The FDIC invites your comments
on how to make this revised proposal
easier to understand. For example:
• Has the FDIC organized the material
to suit your needs? If not, how could the
material be better organized?
• Are the requirements in the
proposed regulation clearly stated? If
not, how could the regulation be stated
more clearly?
• Does the proposed regulation
contain language or jargon that is
unclear? If so, which language requires
clarification?
• Would a different format (grouping
and order of sections, use of headings,
paragraphing) make the regulation
easier to understand?
VIII. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA),
5 U.S.C. 601 et seq., generally requires
an agency, in connection with a
proposed rule, to prepare and make
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available for public comment an initial
regulatory flexibility analysis that
describes the impact of a proposed rule
on small entities.34 However, a
regulatory flexibility analysis is not
required if the agency certifies that the
rule will not have a significant
economic impact on a substantial
number of small entities. The Small
Business Administration (SBA) has
defined ‘‘small entities’’ to include
banking organizations with total assets
of less than or equal to $550 million.35
As of March 31, 2018, there were
5,616 FDIC-insured institutions, of
which 4,177 are considered small
entities for the purposes of RFA.36
The proposed rule could affect
deposit insurance assessments for a
small number of FDIC-insured, small
entities. As discussed in Section II:
Background, the brokered deposit ratio
is one of the financial measures used to
determine assessment rates for
established small banks. The brokered
deposit ratio may increase assessment
rates for established small banks with
brokered deposits greater than 10
percent of total assets.37 Among these
banks, those that are well capitalized
and well rated can already deduct
reciprocal deposits from brokered
deposits and generally would not be
affected by the proposed rule, for
assessment purposes.38
Furthermore, the proposed rule would
not affect the assessment rates of small
banks that do not have reciprocal
deposits or whose brokered deposits
comprise less than 10 percent of total
assets. The FDIC estimates that seven
(0.2 percent) small, FDIC-insured
entities that are either not well
capitalized or not well rated (or both)
could have a lower assessment rate
under the proposed rule if their
reciprocal deposits are excepted from
brokered deposits.39
There are 611 (14.6 percent) small
entities that report holding some
amount of reciprocal deposits and 1,499
U.S.C. 601 et seq.
SBA defines a small banking organization
as having $550 million or less in assets, where ‘‘a
financial institution’s assets are determined by
averaging the assets reported on its four quarterly
financial statements for the preceding year.’’ See 13
CFR 121.201 (as amended, effective December 2,
2014). ‘‘SBA counts the receipts, employees, or
other measure of size of the concern whose size is
at issue and all of its domestic and foreign
affiliates.’’ See 13 CFR 121.103. Following these
regulations, the FDIC uses a covered entity’s
affiliated and acquired assets, averaged over the
preceding four quarters, to determine whether the
covered entity is ‘‘small’’ for the purposes of RFA.
36 FDIC Call Report, March 31, 2018.
37 All else equal, a higher brokered deposit ratio
will result in a higher assessment rate.
38 See 12 CFR 327.16(a)(1)(ii).
39 FDIC Call Report, March 31, 2018.
48567
(35.9 percent) that report holding some
amount of brokered deposits. These
changes could affect some metrics that
rely on the amount of brokered deposits
reported on the Call Report, such as:
• Net Noncore Funding Dependence
Ratio
• Brokered Deposits Maturing in less
than year to Brokered Deposits Ratio
• Brokered Deposits to Deposits Ratio
• Listing Service and Brokered Deposits
to Deposits Ratio
• Reciprocal Brokered Deposits to Total
Brokered Deposits Ratio
Based on available information, it is
difficult to determine whether
additional regulatory costs or costs to
the Deposit Insurance Fund could
result. Nonetheless, the proposed rule
could pose some additional regulatory
costs associated with changes to internal
systems or processes, or changes to
reporting requirements. Based on the
information above, the FDIC certifies
that the proposed rule will not have a
significant economic impact on a
substantial number of small entities.
The FDIC invites comments on all
aspects of the supporting information
provided in this RFA section. In
particular, would this rule have any
significant effects on small entities that
the FDIC has not identified?
IX. Paperwork Reduction Act
In accordance with the requirements
of the Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3521) (PRA), the FDIC
may not conduct or sponsor, and a
respondent is not required to respond
to, an information collection unless it
displays a currently valid Office of
Management and Budget (OMB) control
number. The FDIC has reviewed the
proposed rule and determined that it
revises certain reporting requirements
that have been previously cleared by the
OMB under various control numbers.40
On May 24, 2018, EGRRCPA amended
various statutes administered by the
Agencies and affected regulations issued
34 5
35 The
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40 The reporting requirements are found in the
three Consolidated Reports of Condition and
Income (Call Reports) promulgated by the Federal
Financial Institutions Examination Council (FFIEC).
The Call Reports are designated FFIEC 031
(Consolidated Report of Condition and Income for
a Bank with Domestic and Foreign Offices); FFIEC
041 (Consolidated Report of Condition and Income
for a Bank with Domestic Offices Only); and FFIEC
051 (Consolidated Report of Condition and Income
for a Bank with Domestic Only and Total Assets of
Less than $1 Billion). The FFIEC constituent bank
regulatory agencies (the Board of Governors of the
Federal Reserve System (the Board), the Office of
the Comptroller of the Currency (the OCC) and the
FDIC) (the Agencies) have each obtained
information collection clearances from OMB under
the following Control Numbers: 7100–0036 (Board);
1557–0081 (OCC); and 3064–0052 (FDIC).
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by the Agencies.41 As described above,
certain amendments made by EGRRCPA
took effect on the day of EGRRCPA’s
enactment and immediately impacted
institutions’ regulatory reports. In
response to emergency review requests,
the Agencies received approval from
OMB to revise the reporting of
information in the Call Reports
including the reciprocal deposits
provisions described in this proposed
rule. As a result of OMB’s emergency
approval of revisions to the information
collections affected by the above
statutory changes, the expiration date of
these collections has been revised to
February 28, 2019. The Agencies are
now undertaking the regular PRA
process for revising and extending these
information collections for three years
and plan to publish the required 60-day
notice in the Federal Register.
FDIC’s assessments regulations in part
327. The FDIC is inviting comment on
any administrative burdens that the
proposed changes would place on
depository institutions, including small
depository institutions, and customers
of depository institutions. The FDIC will
consider these comments in connection
with determining an effective date for
the proposed rule. Consistent with
RCDRIA, the FDIC anticipates that any
changes to the assessment rule would be
effective on the first day of a calendar
quarter that begins after the date on
which a final rule is published.
X. Riegle Community Development and
Regulatory Improvement Act
The Riegle Community Development
and Regulatory Improvement Act of
1994 (RCDRIA), 12 U.S.C. 4701, requires
that each Federal banking agency, in
determining the effective date and
administrative compliance requirements
for new regulations that impose
additional reporting, disclosure, or other
requirements on insured depository
institutions, consider, consistent with
principles of safety and soundness and
the public interest, any administrative
burdens that such regulations would
place on depository institutions,
including small depository institutions,
and customers of depository
institutions, as well as the benefits of
such regulations.42 In addition, new
regulations that impose additional
reporting, disclosures, or other new
requirements on insured depository
institutions generally must take effect
on the first day of a calendar quarter
that begins on or after the date on which
the regulations are published in final
form.
The changes relating to ‘‘reciprocal
deposits’’ and section 29 were effective
upon enactment of section 202, and as
described previously, institutions have
already begun reporting reciprocal
deposits as per the new law. The FDIC
anticipates that any final rule relating to
the amendments to part 337 of the
FDIC’s regulations would be effective 30
days after publication in the Federal
Register. However, the proposed rule
also includes changes to conform
section 202’s statutory definition of
‘‘reciprocal deposit’’ with the current
definition of ‘‘reciprocal deposit’’ in the
Banks, Banking, Reporting and
recordkeeping requirements, Savings
associations.
For the reasons stated in the
preamble, the FDIC hereby proposes to
amend parts 327 and 337 as follows:
41 Public
42 12
Law 115–174, 132 Stat. 1296 (2018).
U.S.C. 4802.
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List of Subjects
12 CFR Part 327
Bank deposit insurance, Banks,
Banking, Savings associations.
12 CFR Part 337
PART 327—ASSESSMENTS
1. The authority for 12 CFR part 327
continues to read as follows:
■
Authority: 12 U.S.C. 1441, 1813, 1815,
1817–19, 1821.
2. Amend § 327.8 by revising
paragraph (q) to read as follows:
■
§ 327.8
Definitions.
*
*
*
*
*
(q) Brokered reciprocal deposits—
Reciprocal deposits as defined in
§ 337.6(e)(2)(v) that are not excepted
from the institution’s brokered deposits
pursuant to § 337.6(e).
*
*
*
*
*
§ 327.16
[Amended]
3. Amend § 327.16, by removing
‘‘reciprocal deposit’’ and adding in its
place ‘‘brokered reciprocal deposit as
defined in section 327.8(q)’’ in
paragraph (a)(1)(ii) and by removing
‘‘reciprocal deposits as defined in
§ 327.8(p)’’ and adding in its place
‘‘brokered reciprocal deposits as defined
in section 327.8(q)’’ in paragraph (e)(3).
■
PART 337—UNSAFE AND UNSOUND
BANKING PRACTICES
4. The authority for 12 CFR part 337
continues to read as follows:
■
Authority: 12 U.S.C. 375a(4), 375b,
1463(a)(1),1816, 1818(a), 1818(b), 1819,
1820(d), 1828(j)(2), 1831, 1831f, 5412.
5. Amend § 337.6 by revising
paragraph (b)(2)(ii) introductory text,
■
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redesignating paragraph (e) as paragraph
(f), and adding a new paragraph (e) to
read as follows:
§ 337.6
Brokered deposits.
*
*
*
*
*
(b) * * *
(2) * * *
(ii) Any adequately capitalized
insured depository institution that has
been granted a waiver to accept, renew
or roll over a brokered deposit, or is an
agent institution that receives a
reciprocal deposit (under
§ 337.6(e)(2)(i)(C)), may not pay an
effective yield on any such deposit
which, at the time that such deposit is
accepted, renewed or rolled over,
exceeds by more than 75 basis points:
*
*
*
*
*
(e) Limited exception for reciprocal
deposits. (1) Limited exception.
Reciprocal deposits of an agent
institution shall not be considered to be
funds obtained, directly or indirectly, by
or through a deposit broker to the extent
that the total amount of such reciprocal
deposits does not exceed the lesser of:
(i) $5,000,000,000; or
(ii) An amount equal to 20 percent of
the total liabilities of the agent
institution.
(2) Additional definitions that apply
to the limited exception for reciprocal
deposits—(i) Agent institution means an
insured depository institution that
places a covered deposit through a
deposit placement network at other
insured depository institutions in
amounts that are less than or equal to
the standard maximum deposit
insurance amount, specifying the
interest rate to be paid for such
amounts, if the insured depository
institution:
(A)(1) When most recently examined
under section 10(d) of the Federal
Deposit Insurance Act (12 U.S.C.
1820(d)) was found to have a composite
condition of outstanding or good; and
(2) Is well capitalized;
(B) Has obtained a waiver pursuant to
paragraph (c) of this section; or
(C) Does not receive an amount of
reciprocal deposits that causes the total
amount of reciprocal deposits held by
the agent institution to be greater than
the average of the total amount of
reciprocal deposits held by the agent
institution on the last day of each of the
four calendar quarters preceding the
calendar quarter in which the agent
institution was found not to have a
composite condition of outstanding or
good or was determined to be not well
capitalized.
(ii) Covered deposit means a deposit
that:
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(A) Is submitted for placement
through a deposit placement network by
an agent institution; and
(B) Does not consist of funds that
were obtained for the agent institution,
directly or indirectly, by or through a
deposit broker before submission for
placement through a deposit placement
network.
(iii) Deposit placement network
means a network in which an insured
depository institution participates,
together with other insured depository
institutions, for the processing and
receipt of reciprocal deposits.
(iv) Network member bank means an
insured depository institution that is a
member of a deposit placement
network.
(v) Reciprocal deposits means
deposits received by an agent institution
through a deposit placement network
with the same maturity (if any) and in
the same aggregate amount as covered
deposits placed by the agent institution
in other network member banks.
Dated at Washington, DC, on September
12, 2018.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2018–20303 Filed 9–25–18; 8:45 am]
BILLING CODE 6714–01–P
FEDERAL HOUSING FINANCE
AGENCY
12 CFR Part 1271
RIN 2590–AA99
Miscellaneous Federal Home Loan
Bank Operations and Authorities—
Financing Corporation Assessments
Federal Housing Finance
Agency.
ACTION: Notice of proposed rulemaking.
AGENCY:
The Federal Housing Finance
Agency (FHFA) is proposing to amend
its regulations pertaining to the
operation of the Financing Corporation
(FICO), a vehicle established by one of
FHFA’s predecessors to issue bonds, the
proceeds of which were used to help
fund the resolution of failed savings and
loan associations during the 1980s. The
last of those FICO bonds will mature in
September 2019. By statute, FICO
obtains the monies to pay the interest on
those bonds by assessing depository
institutions (FICO assessments) that are
insured by the Federal Deposit
Insurance Corporation (FDIC). The
proposed rule addresses the manner in
which FICO would conduct the 2019
FICO assessments, which are expected
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SUMMARY:
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to be the last of those assessments.
Specifically, the proposed rule would
provide that all payments made by
FDIC-insured depository institutions
during 2019 will be final, and that no
adjustments to prior FICO assessments
would be permitted after March 26,
2019, the projected date as of which the
FDIC will finalize the amounts of the
final collection for the 2019 FICO
assessments.
DATES: FHFA must receive written
comments on or before October 26,
2018.
ADDRESSES: You may submit your
comments on the proposed rule,
identified by regulatory information
number (RIN) 2590–AA99 by any of the
following methods:
• Agency Website: www.fhfa.gov/
open-for-comment-or-input.
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments. If
you submit your comments to the
Federal eRulemaking Portal, please also
send it by email to FHFA at
RegComments@FHFA.gov to ensure
timely receipt by the agency. Please
include ‘‘RIN 2590–AA99’’ in the
subject line of the message.
• Hand Delivery/Courier: The hand
delivery address is: Alfred M. Pollard,
General Counsel, Attention: Comments/
RIN 2590–AA99, Federal Housing
Finance Agency, Constitution Center,
(OGC) Eighth Floor, 400 Seventh Street
SW, Washington, DC 20219. The
package should be delivered to the
Seventh Street entrance Guard Desk,
First Floor, on business days between 9
a.m. and 5 p.m.
• U.S. Mail, United Parcel Service,
Federal Express, or Other Mail Service:
The mailing address for comments is:
Alfred M. Pollard, General Counsel,
Attention: Comments/RIN 2590–AA99,
Federal Housing Finance Agency,
Constitution Center, (OGC) Eighth Floor,
400 Seventh Street SW, Washington, DC
20219.
FOR FURTHER INFORMATION CONTACT:
Louis M. Scalza, Associate Director,
Examinations, Office of Safety &
Soundness Examinations, Louis.Scalza@
fhfa.gov, (202) 649–3710; Winston Sale,
Assistant General Counsel,
Winston.Sale@fhfa.gov, (202) 649–3081;
or Neil R. Crowley, Deputy General
Counsel, Neil.Crowley@fhfa.gov, (202)
649–3055 (these are not toll-free
numbers), Federal Housing Finance
Agency, 400 Seventh Street SW,
Washington, DC 20219. The telephone
number for the Telecommunications
Device for the Hearing Impaired is (800)
877–8339.
SUPPLEMENTARY INFORMATION:
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48569
I. Comments
FHFA invites comment on all aspects
of the proposed rulemaking, which
FHFA is publishing with a 30-day
comment period. After considering the
comments, FHFA will develop a final
regulation. Copies of all comments
received will be posted without change
on the FHFA website at https://
www.fhfa.gov, and will include any
personal information you provide, such
as your name, address, email address,
and telephone number.
II. Background
FHFA is an independent agency of the
federal government established to
regulate and oversee the Federal
National Mortgage Association, the
Federal Home Loan Mortgage
Corporation, the Federal Home Loan
Banks (Banks), and the Bank System’s
Office of Finance.1 FHFA also is
responsible for overseeing FICO. The
Competitive Equality Banking Act of
1987 2 amended the Federal Home Loan
Bank Act (Bank Act) and authorized
FHFA’s predecessor to establish FICO,
and authorizes the FHFA Director to
select the two Bank presidents that
serve on its directorate, to prescribe
such regulations as are necessary to
carry out the statutory provisions
relating to FICO, and to oversee the
dissolution of FICO.3
FICO is a mixed-ownership, taxexempt government corporation,
chartered in 1987 by the former Federal
Home Loan Bank Board, one of FHFA’s
predecessor agencies, pursuant to the
Federal Savings and Loan Insurance
Corporation (FSLIC) Recapitalization
Act of 1987, as amended
(Recapitalization Act).4 The
Recapitalization Act’s purpose was to
recapitalize the FSLIC insurance fund,
which had been significantly depleted
by a wave of savings and loan (S&L)
failures during the S&L crisis of the
1980s. FICO’s mission was to provide
funding for FSLIC (and later for the
FSLIC Resolution Fund after FSLIC’s
insolvency and later abolishment by the
Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (FIRREA))
by selling bonds to the public. FICO’s
operations are managed by a directorate
composed of the Director of the Office
of Finance and two Bank presidents
1 12
U.S.C. 4511.
Law 100–86, 101 Stat. 552.
3 See 12 U.S.C. 1441(a) (establishment of FICO),
(b)(1)(B) (selection of directors), (i) (dissolution, and
authority for FHFA to exercise any FICO powers,
needed to conclude its affairs), and (j) (authority to
prescribe regulations).
4 See 12 U.S.C. 1441(a).
2 Public
E:\FR\FM\26SEP1.SGM
26SEP1
]]>Agencies
[Federal Register Volume 83, Number 187 (Wednesday, September 26, 2018)]
[Proposed Rules]
[Pages 48562-48569]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-20303]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 83, No. 187 / Wednesday, September 26, 2018 /
Proposed Rules
[[Page 48562]]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Parts 327 and 337
RIN 3064-AE89
Limited Exception for a Capped Amount of Reciprocal Deposits From
Treatment as Brokered Deposits
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Notice of proposed rulemaking and request for comments.
-----------------------------------------------------------------------
SUMMARY: The FDIC seeks comment on a notice of proposed rulemaking to
conform its current regulations that implement brokered deposits and
interest rate restrictions with recent changes to section 29 of the
Federal Deposit Insurance Act made by section 202 of the Economic
Growth, Regulatory Relief, and Consumer Protection Act related to
reciprocal deposits, which took effect on May 24, 2018. Conforming
amendments to the FDIC's regulations governing deposit insurance
assessments are also being proposed. This rulemaking is the first part
of a two-part effort to revisit the brokered deposit rules. The FDIC is
currently working on the second part, which is planned for later this
year and which will seek comment on the brokered deposit regulations
more generally. We encourage comments not related to the implementation
of section 202 to be submitted as part of the broader rulemaking
effort.
DATES: Comments on the rules must be received by October 26, 2018.
ADDRESSES: You may submit comments, identified by RIN 3064-AE89, by any
of the following methods:
Agency Website: https://www.FDIC.gov/regulations/laws/federal/.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th
Street NW, Washington, DC 20429.
Hand Delivery/Courier: 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 7:00 a.m. and 5:00 p.m.
Email: [email protected].
Instructions: Comments submitted must include ``FDIC'' and ``RIN
3064-AE89.'' Comments received will be posted without change to https://www.FDIC.gov/regulations/laws/federal/, including any personal
information provided.
FOR FURTHER INFORMATION CONTACT: Division of Risk Management
Supervision--Thomas F. Lyons, Chief, Policy and Program Development,
(202) 898-6850, [email protected]; Judy Gross, Senior Policy Analyst,
(202) 898-7047, [email protected]; Division of Insurance and Research--
Ashley Mihalik, Senior Policy Analyst, (202) 898-3793,
[email protected]; Legal Division--Vivek V. Khare, Counsel, (202) 898-
6847, [email protected]; Thomas Hearn, Counsel, (202) 898-6967;
[email protected].
SUPPLEMENTARY INFORMATION:
I. Policy Objectives
The policy objective of this proposed rule is to implement section
202 of the Economic Growth, Regulatory Relief, and Consumer Protection
Act, codified in 12 U.S.C. 1831f, which took effect on May 24, 2018.\1\
The main effect of the legislation and this proposed rule is to permit
FDIC-insured financial institutions, under certain circumstances, to
except certain amounts of reciprocal deposits from treatment as
brokered deposits.
---------------------------------------------------------------------------
\1\ Public Law 115-174, 132 Stat. 1296-1368 (2018).
---------------------------------------------------------------------------
II. Background
The Economic Growth, Regulatory Relief, and Consumer Protection Act
(the Act) was enacted on May 24, 2018.\2\ Section 202 of the Act amends
section 29 of the Federal Deposit Insurance Act (FDI Act) \3\ to except
a capped amount of reciprocal deposits from treatment as brokered
deposits for certain insured depository institutions. In addition,
section 202 ensures that the interest rate restrictions in section 29
remain applicable to any deposit, including reciprocal deposits,
whether or not they fall under the limited exception. Section 202 was
effective immediately upon enactment.
---------------------------------------------------------------------------
\2\ Public Law 115-174, 132 Stat. 1296-1368 (2018).
\3\ See 12 U.S.C. 1831f.
---------------------------------------------------------------------------
As more fully discussed below, well-capitalized institutions are
not restricted from accepting or soliciting brokered deposits and have
no restrictions on the rates they pay on deposits. However, under
section 29, less than well-capitalized institutions may not accept or
solicit brokered deposits and may not offer rates on any deposits that
are significantly higher than the prevailing rates in the institution's
normal market area. Section 29 defines the term ``deposit broker'' and
provides a list of exclusions to that term. Funds obtained through a
deposit broker are considered brokered deposits. Section 202 amends
section 29 to effectively provide that a capped amount of reciprocal
deposits will not be considered funds obtained through a deposit broker
for certain insured depository institutions, and thus such deposits
will be non-brokered. Reciprocal deposits that do not meet the section
202 exception are brokered deposits under section 29.
At this time, institutions with reciprocal deposits that meet
section 202's limited exception can refer to the Supplemental
Instructions provided as part of the June 30, 2018, Call Report
Instructions for information on reporting reciprocal deposits under the
new law.\4\ The Federal Financial Institutions Examination Council
(FFIEC) has indicated that it anticipates issuing additional
instructions regarding the application of section 202 to reciprocal
deposits for purposes of reporting in the Call Report for September 30,
2018.
---------------------------------------------------------------------------
\4\ FFIEC Supplemental Instructions, Call Report Date, p. 2,
June 30, 2018. https://www.fdic.gov/news/news/financial/2018/fil18039a.pdf.
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This rulemaking is the first part of a two-part effort to revisit
the brokered deposit rules. The FDIC is currently working on the second
part, which is planned for later this year and will seek comment on the
brokered deposit regulations more generally.
A. Section 29 of the FDI Act
Under section 29 of the FDI Act, an insured depository institution
is restricted from accepting deposits by or through a deposit broker
unless the institution is well capitalized for Prompt Corrective Action
(PCA)
[[Page 48563]]
purposes.\5\ The FDIC may waive this restriction if the insured
depository institution is adequately capitalized; however, the
restriction cannot be waived if the institution is undercapitalized.\6\
Section 29 also imposes restrictions on the deposit interest rates that
an insured depository institution may offer if the institution is not
well capitalized.\7\ These interest rate restrictions cannot be waived.
Section 337.6 of the FDIC's Rules and Regulations implements section 29
of the FDI Act.\8\ Through this regulation, the FDIC has largely
tracked the statutory definition of ``deposit broker'' and its
exceptions.
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\5\ 12 U.S.C. 1831f(a).
\6\ 12 U.S.C. 1831f(c).
\7\ 12 U.S.C. 1831f.
\8\ 12 U.S.C. 1831f(a).
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A ``deposit broker,'' as defined by section 29 of the FDI Act,
includes ``any person engaged in the business of placing deposits, or
facilitating the placement of deposits, of third parties with insured
depository institutions or the business of placing deposits with
insured depository institutions for the purpose of selling interests in
those deposits to third parties. . . .'' Under the FDIC's regulations,
a ``brokered deposit'' is thus defined as a deposit accepted through a
``deposit broker.'' \9\ The definition of ``deposit broker'' is subject
to ten statutory exceptions in section 29 \10\ and one regulatory
exception.\11\
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\9\ 12 CFR 337.6(a)(2).
\10\ 12 U.S.C. 1831 f(g)(2), (i).
\11\ 12 CFR 337.6(a)(5)(ii)(J); see also, 57 FR 23933-01.
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B. Reciprocal Deposits
The reciprocal deposit arrangement is based upon a network of banks
that place funds at other participating banks in order for depositors
to receive insurance coverage for the entire amount of their
deposits.\12\ In these arrangements, institutions within the network
are both sending and receiving identical amounts of deposits
simultaneously. Because reciprocal arrangements can be complex, and
involve numerous banks, they are often managed by a third-party network
sponsor. As a result of this arrangement, the institutions themselves
(along with the network sponsors) are ``in the business of placing
deposits, or facilitating the placement of deposits, of third parties
with insured depository institutions,'' \13\ and the involvement of
deposit brokers within the reciprocal network means the deposits are
brokered deposits.\14\
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\12\ See FDIC Advisory Opinion No. 03-03 (July 29, 2003).
\13\ Excerpt of the definition of ``deposit broker.'' 12 U.S.C.
1831f.
\14\ See FDIC's 2011 Study on Core and Brokered Deposits, issued
July 2011, Sections IV.E. and VIII.E.
---------------------------------------------------------------------------
For assessment purposes, reciprocal deposits have been treated more
favorably than other types of brokered deposits. In 2009, through
rulemaking, the FDIC amended its risk-based assessment rate methodology
for small institutions, i.e., insured depository institutions with less
than $10 billion dollars in total assets.\15\ In that rulemaking, the
FDIC added an ``adjusted brokered deposit ratio'' that applied to small
institutions that were well capitalized and well rated. This ratio
measured the extent to which significant reliance on brokered deposits
helped to fund rapid asset growth. After consideration of comments
received in response to the proposed rule, reciprocal deposits were not
included as part of the adjusted brokered deposit ratio. In its final
rule, the FDIC stated that ``[it] recognizes that reciprocal deposits
may be a more stable source of funding for healthy banks than other
types of brokered deposits and that they may not be as readily used to
fund rapid asset growth.'' \16\ When the FDIC updated its risk-based
assessment rate methodology for established small banks in 2016, it
replaced the adjusted brokered deposit ratio with a brokered deposit
ratio.\17\ The new ratio, which measures significant reliance on
brokered deposits (rapid asset growth is considered as a separate
measure) and applies to all established small banks, continues to
exclude reciprocal deposits for institutions that are well capitalized
and well rated.\18\
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\15\ 79 FR 9525 (March 4, 2009).
\16\ Id. at 9532.
\17\ Generally, an established small bank is a small institution
that has been federally insured for at least five years. See 81 FR
32180 (May 20, 2016).
\18\ See 12 CFR 327.16(a)(1)(ii).
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III. Discussion of Treatment of Reciprocal Deposits Under the Act
Prior to enactment of the Act, all reciprocal deposits were
classified as brokered deposits.\19\ Section 202 of the Act amends
section 29 of the FDI Act to except a capped amount of reciprocal
deposits from treatment as brokered deposits for certain insured
depository institutions. Section 202's amendments took effect upon
enactment on May 24, 2018, and the FDIC is proposing to amend its
regulations to conform with the statutory amendments.
---------------------------------------------------------------------------
\19\ See FDIC's 2011 Study on Core and Brokered Deposits, issued
July 2011, Section IV.
---------------------------------------------------------------------------
Section 202 defines ``reciprocal deposits'' as ``deposits received
by an agent institution through a deposit placement network with the
same maturity (if any) and in the same aggregate amount as covered
deposits placed by the agent institution in other network member
banks.'' Network member banks may receive other deposits through a
network such as (1) deposits received without the institution placing
into the network a deposit of the same maturity and same aggregate
amount (sometimes referred to as ``one-way network deposits'') and (2)
deposits placed by the institution into the network where the deposits
were obtained, directly or indirectly, by or through a deposit broker.
Such other network deposits meet the definition of brokered deposits
but would not meet the definition of reciprocal deposits and thus would
not be eligible to be excepted from an institution's brokered deposits
under section 202.
In this rulemaking, the FDIC is proposing to implement section
202's limited exception by incorporating these statutory definitions
into section 337.6(e)(2) of the brokered deposit rules, without change.
These definitions must be satisfied in order for a capped amount of
reciprocal deposits to be excepted from treatment as brokered deposits.
A. Deposit Placement Network, Covered Deposits, and Network Member Bank
The term ``deposit placement network'' is defined in section 202 as
a network in which an insured depository institution participates,
together with other insured depository institutions, for the processing
and receipt of reciprocal deposits. Institutions that are members of
the deposit placement network are ``network member banks.''
The deposits that an ``agent institution'' places at other banks in
return for reciprocal deposits are termed ``covered deposits'' under
section 202. The term covered deposit is defined as a deposit that (1)
is submitted for placement through a deposit placement network and (2)
does not consist of funds that were obtained for the agent institution,
directly or indirectly, by or through a deposit broker before
submission for placement through the deposit placement network.
B. Agent Institution
Consistent with section 202, proposed section 337.6(e)(2) defines
``agent institution'' as an insured depository institution that places
a covered deposit through a deposit placement network at other insured
depository institutions in amounts that are less than or equal to the
standard maximum deposit insurance amount, and specifies the
[[Page 48564]]
interest rate to be paid for such amounts, if the insured depository
institution:
Is well capitalized \20\ and has a composite condition of
outstanding (CAMELS ``1'') or good (CAMELS ``2'') when most recently
examined under section 10(d) of the FDI Act (described as ``well
rated''); \21\
---------------------------------------------------------------------------
\20\ See generally, 12 CFR part 325, subpart B or 12 CFR part
324, subpart H (FDIC); 12 CFR part 208 (Board of Governors for the
Federal Reserve System); 12 CFR part 6 (Office of the Comptroller of
the Currency). 12 U.S.C. 1831o. ``Well capitalized'' is already
defined in 12 CFR 337.6(a)(3)(i).
\21\ The effective date of a CAMELS composite rating is the date
of written notification to the institution by its primary federal
regulator or state authority of its supervisory rating. See e.g., 12
CFR 327.4(f).
---------------------------------------------------------------------------
has obtained a waiver pursuant to section 29(c) of the FDI
Act; or
does not receive an amount of reciprocal deposits that
causes the total amount of reciprocal deposits held by the agent
institution to be greater than the average of the total amount of
reciprocal deposits held by the agent institution on the last day of
each of the four calendar quarters preceding the calendar quarter in
which the agent institution was found not to have a composite condition
of outstanding or good or was determined to be not well capitalized.
C. Caps Applicable to Agent Institutions
Consistent with section 202, under the proposed regulation, an
``agent institution'' can except reciprocal deposits from being
classified as brokered deposits up to its applicable statutory caps, as
explained below.
General Cap
An agent institution may except reciprocal deposits up to the
lesser of the following amounts (referred to as the general cap) from
being classified as brokered deposits: \22\
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\22\ See FFIEC Supplemental Instructions, Call Report Date, June
30, 2018 https://www.fdic.gov/news/news/financial/2018/fil18039a.pdf.
---------------------------------------------------------------------------
$5 billion or
An amount equal to 20 percent of the agent institution's
total liabilities.
Reciprocal deposits in excess of the general cap, as well as those
reciprocal deposits that do not meet section 202's limited exception,
are brokered deposits.
Special Cap
A special cap applies if the institution is either not well rated
or not well capitalized. In this case, the institution may meet the
definition of ``agent institution'' by maintaining its reciprocal
deposits at or below the special cap, which is the average amount of
reciprocal deposits held at quarter-end during the last four quarters
preceding the quarter that the institution fell below well capitalized
or well rated. The FDIC notes that section 202 does not provide a date
by which an institution must demonstrate that its amount of reciprocal
deposits are within the special cap. The FDIC is considering evaluating
whether an institution's reciprocal deposits meet the special cap based
on information reported in its Call Reports. For an institution that is
determined to fall below well rated, the FDIC would evaluate its
compliance with the special cap based on Call Report data submitted for
the reporting date immediately following when the determination is
made. The FDIC seeks comment on any unintended consequences this may
cause to institutions.
Application of Statutory Caps
Below are descriptions of how the two statutory caps would apply to
an agent institution based upon its capital and composite ratings.
1. Well capitalized and well rated. Institutions that are both well
capitalized and well rated can have non-brokered reciprocal deposits up
to the general cap. Any amount of reciprocal deposits over the general
cap will no longer meet the limited exception and therefore that amount
would be considered to be ``brokered deposits.'' Well-capitalized
institutions can accept all brokered deposits, including reciprocal
deposits that are brokered deposits, without any restrictions.
2. Not well capitalized or not well rated. Institutions that are
either not well capitalized or not well rated are subject to the lesser
of either the special cap or the general cap. The amount of reciprocal
deposits within the institution's applicable cap would not be
considered brokered deposits. In no event, however, can an
institution's non-brokered reciprocal deposits exceed the general cap.
With respect to an institution that is well capitalized but not well
rated, if it received reciprocal deposits above the special cap, it
would no longer meet the definition of ``agent institution.'' In this
situation, an institution would need to decide whether to (1) retain
all of its reciprocal deposits and report them as brokered deposits
(assuming the institution was well capitalized \23\), or (2) lower the
amounts of its reciprocal deposits to within the special cap by the end
of the quarter that it is notified that it is no longer well rated, in
which case all of the institution's reciprocal deposits could be
excepted from its brokered deposits. An institution that is less than
adequately capitalized or adequately capitalized without a waiver would
have the option to lower its reciprocal deposits to within the special
cap by the end of the quarter for which, in the ordinary course, the
change in capital status is reported, or work with its primary federal
regulator to establish a supervisory plan for addressing reciprocal
deposits. The FDIC requests comment on other ways an institution that
is not well rated or not well capitalized could manage its holdings of
reciprocal deposits in excess of the special cap, consistent with the
applicable provisions of section 202 so that its reciprocal deposits
would be treated as non-brokered.
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\23\ 12 U.S.C. 1831f(c). Institutions that are adequately
capitalized may seek a waiver from the FDIC to accept brokered
deposits. Waivers under section 29(c) are only available (1) on a
case-by-case basis, (2) upon application to the FDIC, (3) to
adequately capitalized institutions, and (4) upon a finding that the
acceptance of such deposits does not constitute an unsafe or unsound
practice with respect to such institution. Less than adequately
capitalized institutions (undercapitalized or significantly
undercapitalized institutions) are not eligible to seek a waiver
from the FDIC.
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D. Example of Section 202's Applicability
A well rated and well capitalized community bank (``the Bank'') has
a banking relationship with its local municipality. The municipality
wishes to place deposits in excess of the standard maximum deposit
insurance amount at the Bank. In an effort to provide insurance
coverage for the entire amount of the deposit, the Bank offers the
municipality the option to place its deposits through a deposit
placement network at a specified interest rate.
In this case, the Bank is an ``agent institution'' because it is
both well rated and well capitalized. After establishing itself as an
``agent institution,'' the Bank must next determine whether the
municipal deposits that it wishes to submit into the deposit placement
network are covered deposits. If the deposits are placed directly by
the municipality, without any assistance of a third-party, the deposits
meet the definition of a ``covered deposit.''
Next, if the municipal deposits are ``covered deposits,'' to meet
the statutory definition of ``reciprocal deposits,'' the institution
must receive deposits with the same maturity (if any) and in the same
aggregate amount as the covered deposits it placed with other network
banks. If the definitional framework set forth in section 202 is
satisfied, the Bank may except an amount of the deposits it receives
from
[[Page 48565]]
the deposit network--up to the general cap--from treatment as brokered
deposits.
In contrast to the example described above, if the Bank places
deposits obtained by or through the assistance of deposit broker into a
deposit placement network, then those deposits would not meet the
definition of a ``covered deposit.'' As a result, deposits that the
Bank receives in exchange for its brokered deposits from other network
member banks would not qualify as ``reciprocal deposits'' and therefore
would not meet section 202's limited exception.
E. Conforming Assessments Amendments
The FDIC is proposing to make conforming amendments to its
assessments regulations to be consistent with the statutory definition
of reciprocal deposits. Prior to enactment of section 202, all
reciprocal deposits as defined in the assessment regulations met the
definition of brokered deposits. Because section 202 excepts certain
reciprocal deposits from treatment as brokered deposits, the FDIC is
proposing to replace the current definition of ``reciprocal deposits''
in section 327.8(q) with a new term, ``brokered reciprocal deposit.'' A
``brokered reciprocal deposit'' is a ``reciprocal deposit'' as defined
under section 202, and proposed section 337.6(e)(2)(v), that does not
meet the statute's limited exception (e.g., deposits over the
applicable caps discussed above). The FDIC is also proposing to make
conforming amendments to sections 327.16(a)(1)(ii) and 327.16(e)(3),
which reference reciprocal deposits.
For assessment purposes, ``brokered reciprocal deposits'' will
continue to be excluded from the brokered deposit ratio for established
small institutions that are well capitalized and well rated.\24\ For
new small banks and large and highly complex banks that are less than
well capitalized or not well rated, ``brokered reciprocal deposits''
will continue to be included in an institution's total brokered
deposits for the brokered deposit adjustment.\25\
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\24\ The brokered deposit ratio may increase assessment rates
for established small banks with brokered deposits greater than 10
percent of total assets. Since 2009, when the ratio was first used
as one of the financial measures used to determine an established
small bank's assessment rate, the ratio has excluded reciprocal
deposits from brokered deposits if the bank is well capitalized and
well rated. See 12 CFR 327.16(a)(1)(ii).
\25\ The brokered deposit adjustment applies to all new small
institutions in Risk Categories II, III, and IV, and all large and
all highly complex institutions, except large and highly complex
institutions (including new large and new highly complex
institutions) that are well capitalized and have a CAMELS composite
rating of 1 or 2. The brokered deposit adjustment can increase
assessments for institutions that have brokered deposits in excess
of 10 percent of domestic deposits. See 12 CFR 327.16(e)(3).
---------------------------------------------------------------------------
The FDIC notes that the statutory definition of ``reciprocal
deposit'' is substantially similar to the current regulatory definition
in Part 327, with one difference. Section 202's definition of
``reciprocal deposits'' is limited to funds obtained from a deposit
placement network in exchange for funds placed into the network that
meet the definition of ``covered deposits,'' which excludes funds that
were obtained, directly or indirectly, by or through a deposit broker
before submission for placement through the deposit placement network.
As such, funds that do not meet the statutory definition of
``reciprocal deposit'' because they are obtained in exchange for funds
that the institution acquired by or through a deposit broker are
``brokered deposits'' and would not meet the proposed definition of
``brokered reciprocal deposits.''
The FDIC seeks comment on the extent to which institutions may be
affected by the FDIC's proposal to conform the definition of reciprocal
deposits for assessment purposes with the definition provided in
section 202.
F. Interest Rates
Section 202 applies the statutory interest rate restrictions under
section 29 to all reciprocal deposits. More specifically, section 202
amends section 29(e) of the FDI Act by ensuring that the interest rate
restrictions apply to less than well capitalized banks that accept
reciprocal deposits.\26\ As a result, section 202 confirms that the
current statutory and regulatory rate restrictions for less than well
capitalized institutions continue to apply to any deposit, including a
reciprocal deposit that is a covered deposit.\27\ To ensure consistent
treatment of the interest rate restrictions under section 202, the FDIC
is proposing conforming amendments to section 337.6(b)(2)(ii) of its
rules and regulations.
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\26\ 12 U.S.C. 1831f(h).
\27\ 12 U.S.C. 1831f(g)(3) and (e).
---------------------------------------------------------------------------
IV. Expected Effects
As noted previously, section 202 of the Act took effect upon
enactment, and the proposed rule would conform part 337 with the
legislation and align the assessment rules with the statute's
definition of ``reciprocal deposits.'' The proposed rule applies to all
FDIC-insured depository institutions. As of March 31, 2018, there were
5,616 FDIC-insured institutions. Of these, 2,528 institutions report
having brokered deposits, which totaled $980 billion. Of the
institutions reporting brokered deposits, 1,185 institutions also
report having reciprocal deposits, totaling $48 billion.
Benefits
The proposed rule could affect deposit insurance assessments for a
small number of FDIC-insured institutions. As discussed in Section II:
Background, the brokered deposit ratio is one of the financial measures
used to determine assessment rates for established small banks. The
brokered deposit ratio may increase assessment rates for established
small banks with brokered deposits greater than 10 percent of total
assets.\28\ Among these banks, those that are well capitalized and well
rated can already deduct reciprocal deposits from brokered deposits and
generally would not be affected by the proposed rule, for assessment
purposes.\29\ Furthermore, the proposed rule would not affect the
assessment rates of banks that do not have reciprocal deposits or whose
brokered deposits comprise less than 10 percent of total assets. The
FDIC estimates that fewer than ten (0.178 percent) small FDIC-insured
institutions that are either not well capitalized or not well rated (or
both) could have a lower assessment rate under the proposed rule if
their reciprocal deposits are excepted from brokered deposits.\30\ For
large institutions, generally insured depository institutions with
greater than $10 billion in total assets, the proposed rule may alter
the core deposit ratio, resulting in a change in the bank's
assessment.\31\ The FDIC estimates that 20 (0.356 percent) FDIC-insured
institutions could have a lower assessment due to the effect of the
proposed rule on their core deposit ratio, if their reciprocal deposits
are excepted from treatment as brokered. Based on data as of March 31,
2018, the FDIC estimates that no more than 30 institutions would have
reduced assessment rates, all else equal, and the FDIC's aggregate
assessment revenue
[[Page 48566]]
would be reduced by an estimated $4.3 million annually.
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\28\ All else equal, a higher brokered deposit ratio will result
in a higher assessment rate.
\29\ See 12 CFR 327.16(a)(1)(ii).
\30\ FDIC Call Report, March 31, 2018.
\31\ The core deposit ratio applies to large and highly-complex
institutions and is measured as domestic deposits, excluding
brokered deposits and uninsured non-brokered time deposits, divided
by total liabilities. Reciprocal deposits that are brokered
reciprocal deposits will continue to be excluded from the ratio. See
12 CFR 327.16(b) and Appendix B.
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Adequately capitalized institutions may also benefit from the
proposed rule through a reduction in administrative costs. Under
existing regulations, these institutions must seek and receive a
regulatory waiver from the FDIC in order to accept brokered
deposits.\32\ The proposed rule would allow these institutions that
previously accepted reciprocal deposits to continue to receive
reciprocal deposits up to the lesser of the general or special cap
without requesting a waiver. This allowance results in a de minimis
savings of administrative expenses for affected institutions. The
number of institutions that may benefit from this potential reduction
in administrative costs is difficult to accurately estimate with
available data because it depends on the specific financial conditions
of each bank, fluctuating market conditions for reciprocal deposits,
and future management decisions.
---------------------------------------------------------------------------
\32\ 12 U.S.C. 1831f(c); 12 CFR 337.6(c).
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Undercapitalized institutions may also benefit from the proposed
rule by accepting reciprocal deposits up to the lesser of either the
general or special cap, even though they are otherwise prohibited from
receiving brokered deposits.\33\ Under existing regulations,
undercapitalized institutions cannot solicit or accept any reciprocal
deposits because all reciprocal deposits are treated as brokered
deposits. Because the proposed rule excepts a certain amount of
reciprocal deposits from treatment as brokered, undercapitalized
institutions that, when better capitalized, previously accepted
reciprocal deposits may now be allowed to receive reciprocal deposits
up to the lesser of the general or special cap despite being
undercapitalized. If undercapitalized institutions can receive
reciprocal deposits, the result may be increased utilization of
reciprocal deposits in the future. However, this effect is difficult to
estimate with available data because the decision to receive reciprocal
deposits depends on the specific financial conditions of each bank,
fluctuating market conditions for reciprocal deposits, and future
management decisions.
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\33\ 12 CFR 337.6(b).
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There are 2,528 (45 percent) institutions that report holding some
amount of brokered deposits and 1,185 (21 percent) that report holding
some amount of reciprocal deposits. The changes could affect some
metrics that rely on the amount of brokered deposits reported on the
Call Report, such as:
Net Noncore Funding Dependence Ratio
Brokered Deposits Maturing in less than year to Brokered
Deposits Ratio
Brokered Deposits to Deposits Ratio
Listing Service and Brokered Deposits to Deposits Ratio
Reciprocal Brokered Deposits to Total Brokered Deposits Ratio
Cost
With regards to the difference in the current regulatory definition
of ``reciprocal deposits'' for assessment purposes, which was added
pursuant to the FDIC's assessment authority under section 7 of the FDI
Act, and the statutory definition of reciprocal deposits that was added
to section 29 of the FDI Act, the FDIC notes that banks do not report
data on the amount (if any) of deposits that were obtained, directly or
indirectly, by or through a deposit brokered before submission for
placement through the deposit placement network. As a result, the FDIC
cannot estimate whether this change to align the assessment regulation
definition of ``reciprocal deposits'' with the statutory definition of
that term in section 29 of the FDI Act would affect the amount of
reciprocal deposits that a bank would report or whether it would affect
any bank's assessment rate.
With regards to costs to the Deposit Insurance Fund, the FDIC
estimates that, assuming all currently reported reciprocals align with
the statutory definition, all else equal, the FDIC's aggregate
assessment revenue would be reduced by an estimated $4.3 million
annually. Additional reduced assessment revenue could occur if
institutions shift their funding mix away from funding sources that
affect assessment rates, such as brokered deposits, towards reciprocal
deposits. Historically, when resolving failed institutions, the FDIC
has found that potential acquiring institutions have generally been
unwilling to pay a premium for reciprocal deposits, typically treating
them consistent with other brokered deposits. It is not clear whether
reciprocal deposits that are no longer considered brokered as a result
of section 202 would be viewed by potential acquiring institutions as
more akin to traditional retail deposits for purposes of warranting a
premium. As a result, the FDIC requests comment on whether these non-
brokered reciprocal deposits would be considered differently in the
failing bank context. Additionally, the proposed rule could pose some
additional regulatory costs associated with changes to internal systems
or processes, or changes to reporting requirements.
V. Alternatives
The FDIC considered alternatives to the proposed rule but believes
that the proposed amendments represent the most appropriate option. In
particular, the FDIC considered whether a rulemaking implementing
section 202 was necessary or appropriate. Section 202's amendments to
section 29 became effective upon the Act's enactment on May 24, 2018,
so one view considered was whether a rulemaking was necessary to
implement the amendments. However, the FDIC believes that conforming
section 337.6 with section 202's amendments will remove confusion that
might arise if interested parties only consult section 337.6 for
requirements related to brokered deposits.
Section 202 did not address the assessment rules in part 327 with
respect to reciprocal deposits. However, the definition of ``reciprocal
deposits'' in part 327 varies with the definition of that term in
section 202. As an alternative, the FDIC considered whether it should
continue to use the existing definition of ``reciprocal deposits'' for
assessment purposes. However, the FDIC is concerned that having two
different definitions of ``reciprocal deposits'' could cause confusion
as well as undue burden in the industry, particularly for reporting
purposes.
VI. Request for Comment
The FDIC seeks comment on its proposal to conform its current
regulations that implement brokered deposit and interest rate
restrictions with recent changes to section 29 made by section 202 of
the Act. As noted earlier, this notice of proposed rulemaking is the
first part of a two-part effort to revisit the brokered deposit rules.
The FDIC is currently working on the second part, which is planned for
later this year and which will seek comment on the brokered deposit
regulations more generally. We encourage comments not related to the
implementation of section 202 to be submitted as part of the broader
rulemaking effort. The FDIC seeks comment on all aspects of this
proposed rule and in particular the following questions that were
provided in previous sections of this proposal.
As indicated above, for an institution that is determined
to not be well rated and can only meet the ``agent institution''
definition by maintaining its reciprocal deposits at or below the
special cap, the FDIC is considering
[[Page 48567]]
evaluating this issue based on Call Report Data submitted for the
reporting date immediately following when the determination is made.
The FDIC seeks comment on any unintended consequences this approach may
cause to institutions.
The FDIC seeks comment on other ways an institution that
is not well rated or not well capitalized could manage its holdings of
reciprocal deposits in excess of the special cap, consistent with the
applicable provisions of section 202's definition of ``agent
institution,'' so that its reciprocal deposits would be treated as non-
brokered.
The FDIC seeks comment on the extent to which institutions
may be affected by the FDIC's proposal to conform the definition of
reciprocal deposits for assessment purposes with the definition
provided in section 202.
The FDIC requests comment on whether reciprocal deposits
that are no longer considered brokered deposits as a result of section
202 would be viewed by a potential acquiring institution bidding on the
deposits of a failed institution the same way it views traditional
retail deposits for which a premium would be offered.
The FDIC seeks comments on how the regulations should
apply to de novo institutions that lack four prior quarters of
reciprocal deposits to calculate the special cap.
VII. Solicitation of Comments on Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, 113
Stat. 1338, 1471 (Nov. 12, 1999), requires the Federal banking agencies
to use plain language in all proposed and final rules published after
January 1, 2000. The FDIC invites your comments on how to make this
revised proposal easier to understand. For example:
Has the FDIC organized the material to suit your needs? If
not, how could the material be better organized?
Are the requirements in the proposed regulation clearly
stated? If not, how could the regulation be stated more clearly?
Does the proposed regulation contain language or jargon
that is unclear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand?
VIII. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
generally requires an agency, in connection with a proposed rule, to
prepare and make available for public comment an initial regulatory
flexibility analysis that describes the impact of a proposed rule on
small entities.\34\ However, a regulatory flexibility analysis is not
required if the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
The Small Business Administration (SBA) has defined ``small entities''
to include banking organizations with total assets of less than or
equal to $550 million.\35\
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\34\ 5 U.S.C. 601 et seq.
\35\ The SBA defines a small banking organization as having $550
million or less in assets, where ``a financial institution's assets
are determined by averaging the assets reported on its four
quarterly financial statements for the preceding year.'' See 13 CFR
121.201 (as amended, effective December 2, 2014). ``SBA counts the
receipts, employees, or other measure of size of the concern whose
size is at issue and all of its domestic and foreign affiliates.''
See 13 CFR 121.103. Following these regulations, the FDIC uses a
covered entity's affiliated and acquired assets, averaged over the
preceding four quarters, to determine whether the covered entity is
``small'' for the purposes of RFA.
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As of March 31, 2018, there were 5,616 FDIC-insured institutions,
of which 4,177 are considered small entities for the purposes of
RFA.\36\
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\36\ FDIC Call Report, March 31, 2018.
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The proposed rule could affect deposit insurance assessments for a
small number of FDIC-insured, small entities. As discussed in Section
II: Background, the brokered deposit ratio is one of the financial
measures used to determine assessment rates for established small
banks. The brokered deposit ratio may increase assessment rates for
established small banks with brokered deposits greater than 10 percent
of total assets.\37\ Among these banks, those that are well capitalized
and well rated can already deduct reciprocal deposits from brokered
deposits and generally would not be affected by the proposed rule, for
assessment purposes.\38\
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\37\ All else equal, a higher brokered deposit ratio will result
in a higher assessment rate.
\38\ See 12 CFR 327.16(a)(1)(ii).
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Furthermore, the proposed rule would not affect the assessment
rates of small banks that do not have reciprocal deposits or whose
brokered deposits comprise less than 10 percent of total assets. The
FDIC estimates that seven (0.2 percent) small, FDIC-insured entities
that are either not well capitalized or not well rated (or both) could
have a lower assessment rate under the proposed rule if their
reciprocal deposits are excepted from brokered deposits.\39\
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\39\ FDIC Call Report, March 31, 2018.
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There are 611 (14.6 percent) small entities that report holding
some amount of reciprocal deposits and 1,499 (35.9 percent) that report
holding some amount of brokered deposits. These changes could affect
some metrics that rely on the amount of brokered deposits reported on
the Call Report, such as:
Net Noncore Funding Dependence Ratio
Brokered Deposits Maturing in less than year to Brokered
Deposits Ratio
Brokered Deposits to Deposits Ratio
Listing Service and Brokered Deposits to Deposits Ratio
Reciprocal Brokered Deposits to Total Brokered Deposits Ratio
Based on available information, it is difficult to determine
whether additional regulatory costs or costs to the Deposit Insurance
Fund could result. Nonetheless, the proposed rule could pose some
additional regulatory costs associated with changes to internal systems
or processes, or changes to reporting requirements. Based on the
information above, the FDIC certifies that the proposed rule will not
have a significant economic impact on a substantial number of small
entities.
The FDIC invites comments on all aspects of the supporting
information provided in this RFA section. In particular, would this
rule have any significant effects on small entities that the FDIC has
not identified?
IX. Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (44 U.S.C. 3501-3521) (PRA), the FDIC may not conduct or
sponsor, and a respondent is not required to respond to, an information
collection unless it displays a currently valid Office of Management
and Budget (OMB) control number. The FDIC has reviewed the proposed
rule and determined that it revises certain reporting requirements that
have been previously cleared by the OMB under various control
numbers.\40\
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\40\ The reporting requirements are found in the three
Consolidated Reports of Condition and Income (Call Reports)
promulgated by the Federal Financial Institutions Examination
Council (FFIEC). The Call Reports are designated FFIEC 031
(Consolidated Report of Condition and Income for a Bank with
Domestic and Foreign Offices); FFIEC 041 (Consolidated Report of
Condition and Income for a Bank with Domestic Offices Only); and
FFIEC 051 (Consolidated Report of Condition and Income for a Bank
with Domestic Only and Total Assets of Less than $1 Billion). The
FFIEC constituent bank regulatory agencies (the Board of Governors
of the Federal Reserve System (the Board), the Office of the
Comptroller of the Currency (the OCC) and the FDIC) (the Agencies)
have each obtained information collection clearances from OMB under
the following Control Numbers: 7100-0036 (Board); 1557-0081 (OCC);
and 3064-0052 (FDIC).
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On May 24, 2018, EGRRCPA amended various statutes administered by
the Agencies and affected regulations issued
[[Page 48568]]
by the Agencies.\41\ As described above, certain amendments made by
EGRRCPA took effect on the day of EGRRCPA's enactment and immediately
impacted institutions' regulatory reports. In response to emergency
review requests, the Agencies received approval from OMB to revise the
reporting of information in the Call Reports including the reciprocal
deposits provisions described in this proposed rule. As a result of
OMB's emergency approval of revisions to the information collections
affected by the above statutory changes, the expiration date of these
collections has been revised to February 28, 2019. The Agencies are now
undertaking the regular PRA process for revising and extending these
information collections for three years and plan to publish the
required 60-day notice in the Federal Register.
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\41\ Public Law 115-174, 132 Stat. 1296 (2018).
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X. Riegle Community Development and Regulatory Improvement Act
The Riegle Community Development and Regulatory Improvement Act of
1994 (RCDRIA), 12 U.S.C. 4701, requires that each Federal banking
agency, in determining the effective date and administrative compliance
requirements for new regulations that impose additional reporting,
disclosure, or other requirements on insured depository institutions,
consider, consistent with principles of safety and soundness and the
public interest, any administrative burdens that such regulations would
place on depository institutions, including small depository
institutions, and customers of depository institutions, as well as the
benefits of such regulations.\42\ In addition, new regulations that
impose additional reporting, disclosures, or other new requirements on
insured depository institutions generally must take effect on the first
day of a calendar quarter that begins on or after the date on which the
regulations are published in final form.
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\42\ 12 U.S.C. 4802.
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The changes relating to ``reciprocal deposits'' and section 29 were
effective upon enactment of section 202, and as described previously,
institutions have already begun reporting reciprocal deposits as per
the new law. The FDIC anticipates that any final rule relating to the
amendments to part 337 of the FDIC's regulations would be effective 30
days after publication in the Federal Register. However, the proposed
rule also includes changes to conform section 202's statutory
definition of ``reciprocal deposit'' with the current definition of
``reciprocal deposit'' in the FDIC's assessments regulations in part
327. The FDIC is inviting comment on any administrative burdens that
the proposed changes would place on depository institutions, including
small depository institutions, and customers of depository
institutions. The FDIC will consider these comments in connection with
determining an effective date for the proposed rule. Consistent with
RCDRIA, the FDIC anticipates that any changes to the assessment rule
would be effective on the first day of a calendar quarter that begins
after the date on which a final rule is published.
List of Subjects
12 CFR Part 327
Bank deposit insurance, Banks, Banking, Savings associations.
12 CFR Part 337
Banks, Banking, Reporting and recordkeeping requirements, Savings
associations.
For the reasons stated in the preamble, the FDIC hereby proposes to
amend parts 327 and 337 as follows:
PART 327--ASSESSMENTS
0
1. The authority for 12 CFR part 327 continues to read as follows:
Authority: 12 U.S.C. 1441, 1813, 1815, 1817-19, 1821.
0
2. Amend Sec. 327.8 by revising paragraph (q) to read as follows:
Sec. 327.8 Definitions.
* * * * *
(q) Brokered reciprocal deposits--Reciprocal deposits as defined in
Sec. 337.6(e)(2)(v) that are not excepted from the institution's
brokered deposits pursuant to Sec. 337.6(e).
* * * * *
Sec. 327.16 [Amended]
0
3. Amend Sec. 327.16, by removing ``reciprocal deposit'' and adding in
its place ``brokered reciprocal deposit as defined in section
327.8(q)'' in paragraph (a)(1)(ii) and by removing ``reciprocal
deposits as defined in Sec. 327.8(p)'' and adding in its place
``brokered reciprocal deposits as defined in section 327.8(q)'' in
paragraph (e)(3).
PART 337--UNSAFE AND UNSOUND BANKING PRACTICES
0
4. The authority for 12 CFR part 337 continues to read as follows:
Authority: 12 U.S.C. 375a(4), 375b, 1463(a)(1),1816, 1818(a),
1818(b), 1819, 1820(d), 1828(j)(2), 1831, 1831f, 5412.
0
5. Amend Sec. 337.6 by revising paragraph (b)(2)(ii) introductory
text, redesignating paragraph (e) as paragraph (f), and adding a new
paragraph (e) to read as follows:
Sec. 337.6 Brokered deposits.
* * * * *
(b) * * *
(2) * * *
(ii) Any adequately capitalized insured depository institution that
has been granted a waiver to accept, renew or roll over a brokered
deposit, or is an agent institution that receives a reciprocal deposit
(under Sec. 337.6(e)(2)(i)(C)), may not pay an effective yield on any
such deposit which, at the time that such deposit is accepted, renewed
or rolled over, exceeds by more than 75 basis points:
* * * * *
(e) Limited exception for reciprocal deposits. (1) Limited
exception. Reciprocal deposits of an agent institution shall not be
considered to be funds obtained, directly or indirectly, by or through
a deposit broker to the extent that the total amount of such reciprocal
deposits does not exceed the lesser of:
(i) $5,000,000,000; or
(ii) An amount equal to 20 percent of the total liabilities of the
agent institution.
(2) Additional definitions that apply to the limited exception for
reciprocal deposits--(i) Agent institution means an insured depository
institution that places a covered deposit through a deposit placement
network at other insured depository institutions in amounts that are
less than or equal to the standard maximum deposit insurance amount,
specifying the interest rate to be paid for such amounts, if the
insured depository institution:
(A)(1) When most recently examined under section 10(d) of the
Federal Deposit Insurance Act (12 U.S.C. 1820(d)) was found to have a
composite condition of outstanding or good; and
(2) Is well capitalized;
(B) Has obtained a waiver pursuant to paragraph (c) of this
section; or
(C) Does not receive an amount of reciprocal deposits that causes
the total amount of reciprocal deposits held by the agent institution
to be greater than the average of the total amount of reciprocal
deposits held by the agent institution on the last day of each of the
four calendar quarters preceding the calendar quarter in which the
agent institution was found not to have a composite condition of
outstanding or good or was determined to be not well capitalized.
(ii) Covered deposit means a deposit that:
[[Page 48569]]
(A) Is submitted for placement through a deposit placement network
by an agent institution; and
(B) Does not consist of funds that were obtained for the agent
institution, directly or indirectly, by or through a deposit broker
before submission for placement through a deposit placement network.
(iii) Deposit placement network means a network in which an insured
depository institution participates, together with other insured
depository institutions, for the processing and receipt of reciprocal
deposits.
(iv) Network member bank means an insured depository institution
that is a member of a deposit placement network.
(v) Reciprocal deposits means deposits received by an agent
institution through a deposit placement network with the same maturity
(if any) and in the same aggregate amount as covered deposits placed by
the agent institution in other network member banks.
Dated at Washington, DC, on September 12, 2018.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2018-20303 Filed 9-25-18; 8:45 am]
BILLING CODE 6714-01-P
