Interest Rate Restrictions on Institutions That Are Less Than Well Capitalized, 46470-46495 [2019-18360]
Download as PDF
<![CDATA[
46470
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
issued by States and territories
identified on the DHS website
(Enhanced licenses issued by these
states are clearly marked Enhanced or
Enhanced Driver’s License); a military
ID; or other Federal government issued
Photo-ID card.
jbell on DSK3GLQ082PROD with PROPOSALS
C. Procedure for Submitting Prepared
General Statements for Distribution
Any person who has plans to present
a prepared general statement may
request that copies of his or her
statement be made available at the
public meeting. Such persons may
submit requests, along with an advance
electronic copy of their statement in
PDF (preferred), Microsoft Word or
Excel, WordPerfect, or text (ASCII) file
format, to the appropriate address
shown in the ADDRESSES section at the
beginning of this document. The request
and advance copy of statements must be
received at least one week before the
public meeting and may be emailed,
hand-delivered, or sent by mail. DOE
prefers to receive requests and advance
copies via email. Please include a
telephone number to enable DOE staff to
make a follow-up contact, if needed.
D. Conduct of Public Meeting
DOE will designate a DOE official to
preside at the public meeting and may
also use a professional facilitator to aid
discussion. The meeting will not be a
judicial or evidentiary-type public
hearing, but DOE will conduct it in
accordance with section 336 of the
Energy Policy and Conservation Act, as
amended (42 U.S.C. 6306). A court
reporter will be present to record the
proceedings and prepare a transcript.
DOE reserves the right to schedule the
order of presentations and to establish
the procedures governing the conduct of
the public meeting. After the public
meeting and until the end of the
comment period, interested parties may
submit further comments on the
proceedings and any aspect of the
rulemaking.
The public meeting will be conducted
in an informal, conference style. DOE
will present summaries of comments
received before the public meeting,
allow time for prepared general
statements by participants, and
encourage all interested parties to share
their views on issues affecting this
rulemaking. Each participant will be
allowed to make a general statement
(within time limits determined by DOE),
before the discussion of specific topics.
DOE will permit, as time permits, other
participants to comment briefly on any
general statements.
At the end of all prepared statements
on a topic, DOE will permit participants
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
to clarify their statements briefly and
comment on statements made by others.
Participants should be prepared to
answer questions by DOE and by other
participants concerning these issues.
DOE representatives may also ask
questions of participants concerning
other matters relevant to this
rulemaking. The official conducting the
public meeting will accept additional
comments or questions from those
attending, as time permits. The
presiding official will announce any
further procedural rules or modification
of the above procedures that may be
needed for the proper conduct of the
public meeting.
A transcript of the public meeting will
be included in the docket, which can be
viewed as described in the Docket
section at the beginning of this
document. In addition, any person may
buy a copy of the transcript from the
transcribing reporter.
Signed in Washington, DC, on August 27,
2019.
Alexander N. Fitzsimmons,
Acting Deputy Assistant Secretary for Energy
Efficiency, Energy Efficiency and Renewable
Energy.
[FR Doc. 2019–19051 Filed 9–3–19; 8:45 am]
BILLING CODE 6450–01–P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 337
RIN 3064–AF02
Interest Rate Restrictions on
Institutions That Are Less Than Well
Capitalized
Federal Deposit Insurance
Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
AGENCY:
The FDIC is seeking comment
on proposed revisions to its regulations
relating to interest rate restrictions that
apply to less than well capitalized
insured depository institutions. Under
the proposed rule, the FDIC would
amend the methodology for calculating
the national rate and national rate cap
for specific deposit products. The
national rate would be the weighted
average of rates paid by all insured
depository institutions on a given
deposit product, for which data are
available, where the weights are each
institution’s market share of domestic
deposits. The national rate cap for
particular products would be set at the
higher of the 95th percentile of rates
paid by insured depository institutions
weighted by each institution’s share of
SUMMARY:
PO 00000
Frm 00011
Fmt 4702
Sfmt 4702
total domestic deposits, or the proposed
national rate plus 75 basis points. The
proposed rule would also greatly
simplify the current local rate cap
calculation and process by allowing less
than well capitalized institutions to
offer up to 90 percent of the highest rate
paid on a particular deposit product in
the institution’s local market area.
DATES: Comments will be accepted until
November 4, 2019.
ADDRESSES: You may submit comments
on the notice of proposed rulemaking
using any of the following methods:
• Agency website: https://
www.fdic.gov/regulations/laws/federal/.
Follow the instructions for submitting
comments on the agency website.
• Email: comments@fdic.gov. Include
RIN 3064–AF02 on the subject line of
the message.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments, Federal
Deposit Insurance Corporation, 550 17th
Street NW, Washington, DC 20429.
• Hand Delivery: Comments may be
hand delivered to the guard station at
the rear of the 550 17th Street NW
building (located on F Street) on
business days between 7 a.m. and 5 p.m.
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Public Inspection: All comments
received, including any personal
information provided, will be posted
generally without change to https://
www.fdic.gov/regulations/laws/federal.
Paper copies of public comments may
be ordered from the FDIC Public
Information Center, 3501 North Fairfax
Drive, Room E–1002, Arlington, VA
22226, or by telephone at (877) 275–
3342 or (703) 562–2200.
FOR FURTHER INFORMATION CONTACT:
Legal Division: Vivek V. Khare, Counsel,
(202) 898–6847, vkhare@fdic.gov;
Thomas Hearn, Counsel, (202) 898–
6967, thohearn@fdic.gov; 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.
SUPPLEMENTARY INFORMATION:
Policy Objectives
On December 18, 2018, the FDIC
Board adopted an advance notice of
proposed rulemaking (ANPR) to obtain
input from the public on its brokered
deposit and interest rate regulations in
light of significant changes in
technology, business models, the
economic environment, and products
E:\FR\FM\04SEP1.SGM
04SEP1
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
since the regulations were adopted.1 As
described in the ANPR, interest rates
have been rising, however the national
rate that is used to calculate rate caps
applicable to less than well capitalized
banks has stayed low because of market
dynamics, including the introduction of
new deposit products and features. In
an effort to ensure that the national rate
cap is reflective of the prevailing rates
offered by institutions, the FDIC sought
comment on all aspects of its regulatory
approach relating to the interest rate
restrictions, and specifically asked for
comment on potential changes to the
methodology used to calculate the
national rate. The policy objective of
this NPR is to seek comment on a
proposal that attempts to ensure that
deposit interest rate caps appropriately
reflect the prevailing deposit interest
rate environment, while continuing to
ensure that less than well capitalized
institutions do not solicit deposits by
offering interest rates that significantly
exceed prevailing rates on comparable
deposit products. The FDIC anticipates
that another NPR that addresses policy
issues related to brokered deposits more
generally will be issued at a later date.
jbell on DSK3GLQ082PROD with PROPOSALS
I. Background
Section 224 of the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA)
added section 29 to the Federal Deposit
Insurance (FDI) Act titled ‘‘Brokered
Deposits.’’ The law originally restricted
‘‘troubled’’ insured depository
institutions without a waiver from (1)
accepting deposits from a deposit broker
and (2) soliciting deposits by offering
rates of interest on deposits that are
significantly higher than the prevailing
rates of interest on deposits offered by
other insured depository institutions
(‘‘institutions’’ or ‘‘banks’’) having the
same type of charter in such depository
institution’s normal market area.2
Section 29 defined a ‘‘troubled
institution’’ as an undercapitalized
institution. Congress took further action
two years later by enacting the Federal
Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA). As
part of FDICIA, Congress made several
amendments to align section 29 of the
FDI Act with the prompt corrective
action (PCA) framework.3 One of these
amendments broadened the
applicability of section 29 from
1 The ANPR was published for comment in the
Federal Register on February 6, 2019. (84 FR 2366)
2 Public Law 101–73, August 9, 1989, 103 Stat.
183.
3 The PCA capital thresholds are: (1) Well
capitalized; (2) adequately capitalized; (3)
undercapitalized; (4) significantly undercapitalized;
and (5) critically undercapitalized.
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
‘‘troubled institutions’’ (i.e.,
undercapitalized banks) to any insured
depository institution that is not well
capitalized.
Statutory Provisions Related to the
Interest Rate Restrictions
Under section 29, well capitalized
institutions are not restricted in paying
any rate of interest on any deposit.
However, the statute imposes interest
rate restrictions on categories of insured
depository institutions that are less than
well capitalized. These categories are (1)
adequately capitalized institutions with
waivers to accept brokered deposits
(including reciprocal deposits excluded
from being considered brokered
deposits); 4 (2) adequately capitalized
institutions without waivers to accept
brokered deposits; 5 and (3)
undercapitalized institutions.6 The
statutory restrictions for each category
are described in detail below.
Adequately capitalized institutions
with waivers to accept brokered
deposits. Institutions in this category
may not pay a rate of interest on
deposits that ‘‘significantly exceeds’’ the
following: ‘‘(1) The rate paid on deposits
of similar maturity in such institution’s
normal market area for deposits
accepted in the institution’s normal
market area; or (2) the national rate paid
on deposits of comparable maturity, as
established by the [FDIC], for deposits
accepted outside the institution’s
normal market area.’’ 7
Adequately capitalized institutions
without waivers to accept brokered
deposits. In this category, institutions
may not offer rates that ‘‘are
significantly higher than the prevailing
rates of interest on deposits offered by
other insured depository institutions in
such depository institution’s normal
market area.’’ 8 For institutions in this
category, the statute restricts interest
rates in an indirect manner. Rather than
simply setting forth an interest rate
restriction for adequately capitalized
institutions without a waiver to accept
brokered deposits, the statute defines
the term ‘‘deposit broker’’ to include
‘‘any insured depository institution that
is not well capitalized . . . which
engages, directly or indirectly, in the
solicitation of deposits by offering rates
of interest which are significantly higher
than the prevailing rates of interest on
deposits offered by other insured
depository institutions in such
depository institution’s normal market
4 12
U.S.C. 1831f(e).
U.S.C. 1831f(g)(3).
6 12 U.S.C. 1831f(h).
7 12 U.S.C. 1831f(e).
8 12 U.S.C. 1831f(g)(3).
5 12
PO 00000
Frm 00012
Fmt 4702
Sfmt 4702
46471
area.’’ 9 In other words, the depository
institution itself is a ‘‘deposit broker’’ if
it offers rates significantly higher than
the prevailing rates in its own ‘‘normal
market area.’’ Without a waiver, the
institution cannot accept deposits from
a ‘‘deposit broker.’’ Thus, the institution
cannot accept these deposits from itself.
In this indirect manner, the statute
prohibits institutions in this category
from offering rates significantly higher
than the prevailing rates in the
institution’s ‘‘normal market area.’’
Undercapitalized institutions. In this
category, institutions may not solicit
deposits by offering rates ‘‘that are
significantly higher than the prevailing
rates of interest on insured deposits (1)
in such institution’s normal market area;
or (2) in the market area in which such
deposits would otherwise be
accepted.’’ 10
II. Regulatory Approach
The FDIC has implemented the
statutory interest rate restrictions
through two rulemakings.11 While the
statutory provisions noted above set
forth a basic framework based upon
capital categories, they do not provide
certain key details, such as definitions
of the terms ‘‘significantly exceeds,’’
‘‘significantly higher,’’ ‘‘market,’’ and
‘‘national rate.’’ As a result, the FDIC
defined these key terms via rulemaking
in 1992. Both the ‘‘national rate’’
calculation and the application of the
interest rate restrictions were updated in
a 2009 rulemaking.
‘‘Significantly Exceeds’’ or
‘‘Significantly Higher.’’ 12 Through both
the 1992 and the 2009 rulemakings, the
FDIC has interpreted that a rate of
interest ‘‘significantly exceeds’’ another
rate, or is ‘‘significantly higher’’ than
another rate, if the first rate exceeds the
second rate by more than 75 basis
points.13 In adopting this standard in
1992, and subsequently retaining it in
2009, the FDIC offered the following
explanation: ‘‘Based upon the FDIC’s
experience with the brokered deposit
prohibitions to date, it is believed that
this number will allow insured
depository institutions subject to the
9 Id.
10 12
U.S.C. 1831f(h).
FR 23933 (1992); 74 FR 26516 (2009).
12 The FDIC has not viewed the slight verbal
variations in these provisions as reflecting a
legislative intent that they have different meaning
and so the agency has, through rulemaking,
construed the same meaning for these two phrases.
13 12 CFR 337.6(b)(2)(ii), (b)(3)(ii) and (b)(4). The
FDIC first defined ‘‘significantly higher’’ as 50 basis
points. 55 FR 39135 (1990). As part of the 1992
rulemaking, commenters suggested that the FDIC
define ‘‘significantly higher’’ as 100 basis points. In
response, the FDIC defined ‘‘significantly higher’’ as
75 basis points.
11 57
E:\FR\FM\04SEP1.SGM
04SEP1
46472
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
jbell on DSK3GLQ082PROD with PROPOSALS
interest rate ceilings . . . to compete for
funds within markets, and yet constrain
their ability to attract funds by paying
rates significantly higher than prevailing
rates.’’ 14
‘‘Market.’’ In the FDIC’s regulations,
as implemented through both the 1992
and 2009 rulemaking, the term ‘‘market’’
is ‘‘any readily defined geographical
area in which the rates offered by any
one insured depository institution
soliciting deposits in that area may
affect the rates offered by other insured
depository institutions in the same
area.’’ 15 The FDIC determines an
institution’s market area on a case-bycase basis.16
The ‘‘National Rate.’’ As part of the
1992 rulemaking, the ‘‘national rate’’
was defined as follows: ‘‘(1) 120 percent
of the current yield on similar maturity
U.S. Treasury obligations; or (2) In the
case of any deposit at least half of which
is uninsured, 130 percent of such
applicable yield.’’ In defining the
‘‘national rate’’ in this manner, the FDIC
understood that the spread between
Treasury securities and depository
institution deposits can fluctuate
substantially over time but relied upon
the fact that such a definition is
‘‘objective and simple to administer.’’ 17
By using percentages (120 percent, or
130 percent for wholesale deposits, of
the yield on U.S. Treasury obligations)
instead of a fixed number of basis
points, the FDIC hoped to ‘‘allow for
greater flexibility should the spread to
Treasury securities widen in a rising
interest rate environment.’’
Additionally, at the time of the 1992
rulemaking, the FDIC did not have
readily available data on actual deposit
rates paid and used Treasury rates as a
proxy.
Prior to the 2009 rulemaking, yields
on Treasury securities began to
plummet, driven by global economic
uncertainties, which resulted in a
‘‘national rate’’ that was lower than
deposit rates offered by many
institutions. As part of the 2009
rulemaking, with the benefit of having
data on offered rates available on a
substantially real-time basis, the FDIC
redefined the ‘‘national rate’’ as ‘‘a
simple average of rates paid by all
14 57 FR 23933, 23939 (1992); 74 FR 26516, 26520
(2009).
15 57 FR 23933 (1992) and 74 FR 26516 (2009).
16 12 CFR 337.6(f).
17 57 FR 23933, 23938 (June 5, 1992).
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
insured depository institutions and
branches for which data are
available.’’ 18 At that time, the FDIC
noted that the ‘‘national rate’’
methodology represents an objective
average of rates paid by all reporting
insured depository institutions for
particular products.
The ‘‘Prevailing Rate’’
The FDIC has recognized, as part of its
regulation on interest rate restrictions,
that competition for deposit pricing has
become increasingly national in scope.
Therefore, through the 2009 rulemaking,
the FDIC presumes that the prevailing
rate in an institution’s market areas is
the FDIC-defined national rate.19
Application of the Interest Rate
Restrictions
A bank that is not well capitalized
generally may not offer deposit rates
more than 75 basis points above the
national rate for deposits of similar size
and maturity.20
As noted above, the national rate is
defined as a simple average of rates paid
by all insured depository institutions
and branches that offer and publish
rates for specific products. These
products include non-jumbo and jumbo
CDs of various maturities, as well as
savings, checking and money market
deposit accounts (MMDAs).21 The FDIC
receives interest rate data on various
deposit products from a private data
aggregator on a weekly basis. The data
aggregator computes the simple averages
for the various deposit products as well
as the corresponding national rate cap
by adding 75 basis points to each simple
average. The FDIC then publishes on a
weekly basis the national rate simple
averages and corresponding national
rate caps on its website.22
If the posted national rates differ from
the actual rates in a bank’s local market
area, the bank may present evidence to
the FDIC that the prevailing rate in a
18 74
FR 26516 (2009).
FR 26516 at 26519 (2009).
20 12 CFR 337.6(b)(2)(ii)(B). Well capitalized
banks are not subject to the interest rate restrictions
in § 337.6. However, a quantitatively ‘‘well
capitalized’’ bank subject to a written agreement,
order to cease and desist, capital directive, or
prompt corrective action directive which includes
a capital maintenance provision, is reclassified as
adequately capitalized for § 337.6 purposes.
21 Jumbo accounts are accounts with deposits
greater or equal to $100,000.
22 Available at: https://www.fdic.gov/regulations/
resources/rates/.
19 74
PO 00000
Frm 00013
Fmt 4702
Sfmt 4702
particular market is higher than the
national rate.23 If the FDIC agrees with
this evidence,24 the institution would be
permitted to pay as much as 75 basis
points above the local prevailing rate for
deposits solicited in its local market
areas. For deposits that are solicited on
the internet or otherwise outside its
local market, the institution would have
to offer rates that do not exceed the
national rate cap. In evaluating this
evidence, the FDIC may use segmented
market rate information (for example,
evidence by State, county or
metropolitan statistical area). Also, the
FDIC may consider evidence as to the
rates offered by credit unions but only
if the insured depository institution
competes directly with the credit unions
in the particular market.
III. Need for Further Rulemaking
The current interest rate cap
regulations became effective in 2010
and were adopted to modify the
previous national rate cap (based on
U.S. Treasury securities) that had
become overly restrictive. Chart 1 below
reflects the current national rate cap and
the average of the top ten rates paid for
a 12-month CD between 2010 and the
present.25 Chart 1 illustrates that
between 2010 and approximately the
second quarter of 2015, rates on
deposits were quite low, even for the
top rate payers. The current regulation’s
methodology for calculating the national
rate, to which 75 basis points is added
to arrive at the national rate cap,
resulted in a national rate cap that
allowed less than well capitalized
institutions to easily compete with even
the highest rates paid on the 12-month
CD.
23 12
CFR 337.6(f).
procedures for seeking such a
determination are set forth in FIL–69–2009
(December 4, 2009). As explained in the FIL, an
insured depository institution can request a local
rate determination by sending a letter to the
applicable FDIC regional office. The institution
should specify its market area(s). After receiving the
request, the FDIC will make a determination as to
whether the bank’s market area is a high-rate area.
If the FDIC agrees that the bank is operating in a
high-rate area, the bank would need to calculate
and retain evidence of the prevailing rates for
specific deposits in its local market area. The
question and answer attachment was revised in
November 1, 2011.
25 The average of the top ten rates paid for 12
month CDs is meant to illustrate a competitive
offering rate for wholesale insured deposits and
show the general direction of the movement of the
market for deposit rates.
24 The
E:\FR\FM\04SEP1.SGM
04SEP1
Since July 2015, however, market
conditions have changed so the current
national rate methodology results in a
national rate for the 12-month CD that,
when 75 basis points are added,
produces a national rate cap that has
remained relatively unchanged and
could restrict less than well capitalized
institutions from competing for marketrate funding. Market conditions have
caused similar changes in the rates of
other deposit products compared to the
applicable rate cap, although the timing
of when such changes occurred varied
from product to product. Interest rates
have been relatively low since the
financial crisis that began in 2007.
Towards the end of 2015, however,
some banks began to increase rates paid
on deposits as the Federal Reserve
increased its federal funds rate targets.
During this time, and up to the present
day, the largest banks have been, on
average, slower to raise interest rates on
deposits (as published). This has held
down the simple average of rates offered
across all branches. Additionally,
institutions, including the largest banks,
have recently been offering more
deposit products with special features,
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
such as rewards checking, higher rates
on odd-term maturities, negotiated rates,
and cash bonuses, that are not included
in the calculation of the posted national
rate.
Because of these developments, the
majority of the institutions subject to the
interest rate caps have been granted
approval to use the local rate cap for
deposits obtained locally. The national
rate cap, however, remains applicable to
deposits that these institutions obtained
from outside their respective normal
market area, including through the
internet.
Setting the national rate cap at a too
low of a level could prohibit less than
well capitalized banks from competing
for deposits and create an unintentional
liquidity strain on those banks
competing in national markets. For
example, a national rate cap that is too
low could destabilize a less than well
capitalized bank just as it is working on
improving its financial condition.
Preventing such institutions from being
competitive for deposits, when they are
most in need of predictable liquidity,
can create severe funding problems.
Additionally, a rate cap that is too low
PO 00000
Frm 00014
Fmt 4702
Sfmt 4702
46473
may be inconsistent with the statutory
requirement that a firm is prohibited
from offering a rate that ‘‘significantly
exceeds’’ or is ‘‘significantly higher’’
than the prevailing rate. This could
unnecessarily harm the institution and
its customers, especially when liquidity
planning is essential for safety and
soundness. At the same time, however,
the statute imposes interest rate
restrictions on weak institutions. It has
been the FDIC’s experience that while
some banks recover from problems,
others use high-rate funding and other
available funds, not to recover, but to
delay insolvency—a strategy that could
lead to increased losses for the deposit
insurance fund.26
Consequently, the FDIC is proposing
to modify its regulations to provide a
more balanced, reflective, and dynamic
national and local rate cap that will
ensure that less than well capitalized
institutions have the flexibility to access
market-rate funding, yet prevent them
26 See e.g., OIG Failed Bank Review for Proficio
Bank, February 2018, FBR–18–001, (https://
www.fdicoig.gov/sites/default/files/publications/
FBR-18-001.pdf).
E:\FR\FM\04SEP1.SGM
04SEP1
EP04SE19.001</GPH>
jbell on DSK3GLQ082PROD with PROPOSALS
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
46474
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
from offering a rate that significantly
exceeds the prevailing rate for a
particular product, in accordance with
Section 29.
jbell on DSK3GLQ082PROD with PROPOSALS
Issues Raised by Commenters
In response to the ANPR on brokered
deposits and interest rate restrictions,
the FDIC received over 130 comments
from individuals, banking organizations,
non-profits, as well as industry and
trade groups, representing banks,
insurance companies, and the broader
financial services industry. Of the total
comments, 59 related to the FDIC’s rules
on the interest rate restrictions.
The majority of these commenters
expressed concerns about the current
national rate calculation and raised the
same issues highlighted by the FDIC as
part of the ANPR. Most commenters
were of the view that the current
national rate cap is too low. One reason
cited by commenters was that the largest
banks with the most branches have a
disproportional effect on the national
rate. These institutions have been slow
to increase published rates even as
interest rates offered by community
banks and online-focused banks have
begun to rise significantly in
comparison. Many of these commenters
suggested that this skewing effect is
compounded by minimizing the
significance of online-focused banks,
which have few or no branches but tend
to pay the highest rates. Commenters
also noted that the national rate is low
because published rates (1) tend to be
lower than the actual interest paid on
deposits after negotiation and (2) may
not accurately reflect certain
promotional or cash bonus products.
Some commenters stated that because
of technological advances (e.g., internet
and smartphones) any depositor can
shop nationwide for the best yield, so
all institutions compete in the national
market. As a result of this new way to
access deposits, along with the variety
of available deposit products,
commenters suggested that no single
formula or set of formulas would be able
to accurately define the prevailing rate
in an institution’s normal market area,
although commenters expressed a desire
for a more dynamic approach. One
commenter stated that there will always
be constant evolution in the types of
interest paid to depositors, and new
entrants will continue to develop
different products.
A number of commenters stated that
the interest rate restrictions are
penalizing less than well capitalized
institutions and increase the likelihood
of a liquidity failure because such
institutions would be at a competitive
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
disadvantage in raising deposit funding
at the current rate caps.
Several commenters also raised
concerns over examiners’ use of the
national rate cap as a proxy for ‘‘high
risk’’ deposits for well capitalized
banks. The FDIC has responded to these
concerns by revising its Risk
Management Supervision Manual of
Examination Policies and clarifying to
examiners that rate caps apply only to
institutions that are less than well
capitalized.27
One commenter believed that it
would be inconsistent with
Congressional intent for the FDIC to take
action to modify interest rate
restrictions in a manner that would
allow less than well capitalized banks to
accept high-rate deposits.
Recommendations Provided by
Commenters
Many commenters provided
recommendations for changing the
national rate and national rate cap
methodology. Commenters suggested
the following changes:
• The national rate calculation should
include all comparable deposit rates,
including, for example, promotional CD
products (e.g., ‘‘off-tenor’’ terms),
specials offered (e.g., cash incentives),
rewards checking products, and
products that are available only in the
online marketplace.
• The national rate calculation should
include one entry per bank charter
rather than the current approach that
calculates the simple average of
published rates by all branches.
• The national rate should be based
on fixed income instruments such as
U.S. Treasury yields or the Federal
Home Loan Bank advance rate. Some of
these commenters suggested that the
current national rate cap should allow
institutions to choose between the
higher of the national rate cap set in the
1992 and the 2009 rulemaking. This
would allow less than well capitalized
institutions to offer rates at the higher of
(1) 120, or 130 percent for wholesale
deposits, of the U.S. Treasury yields
plus 75 basis points and (2) the current
national rate cap (simple average of all
branches plus 75 basis points).
• The national rate calculation should
be based on an average of the top listing
service rates.
27 https://www.fdic.gov/regulations/safety/
manual/section6-1.pdf. For safe and sound
operation, it is important for the management of any
institution to assess and monitor the characteristics
of its entire funding base, to understanding of the
stability of all funding sources, and to identify
potential funding shortfalls and sources that in a
stress event may become unavailable or cost
prohibitive. The FDIC is evaluating whether any
further changes to the Manual are warranted.
PO 00000
Frm 00015
Fmt 4702
Sfmt 4702
• Community banks should be able to
use a more tailored local market rate
that includes online rates, specials, and
promotional rates.
Additionally, other commenters
asserted that the interest rate restrictions
should be eliminated and replaced with
growth restrictions on banks that are
undercapitalized or have serious asset
quality issues.
In response to the issues raised by
commenters, the FDIC seeks public
comments on a proposal to amend the
interest rate caps. The purpose of the
proposed rule would be to ensure that
the rate caps are more dynamic in that
they remain reflective of the prevailing
rates offered through all stages of the
economic and interest rate cycles.
Additionally, the proposed rule is
intended to allow less than well
capitalized insured depository
institutions subject to the interest rate
caps to reasonably compete for funds
within markets, and yet, in accordance
with Section 29, constrain them from
offering a rate that significantly exceeds
the prevailing rate for a particular
product.
IV. Proposed Rule
The proposal would amend the
national rate and both the national rate
cap and the local rate cap. The proposal
would also provide a new simplified
process for institutions that seek to offer
a local market rate that exceeds the
national rate cap.
National Rate
The proposed national rate would be
the weighted average of rates paid by all
insured depository institutions on a
given deposit product, for which data
are available, where the weights are the
institution’s market share of domestic
deposits. Through this proposal, the
FDIC would continue to interpret the
‘‘prevailing rates of interest . . . in an
institution’s normal market area’’ to be
the national rate, as defined by
regulation. The key difference between
the proposed national rate and the
current national rate is that the
calculation of the proposed national rate
would be a weighted average based on
an institution’s share of total domestic
deposits, while the current methodology
is based on an institution’s number of
branches.
In determining the proposed national
rate, the FDIC would calculate an
average rate per institution for each
specific deposit product that the
institution offers, and for which data is
available, including CDs of various
tenors, as well as savings accounts,
checking accounts and MMDAs. The
national rate for a specific deposit
E:\FR\FM\04SEP1.SGM
04SEP1
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
product would then be calculated by
multiplying each bank’s rate by its
amount of domestic deposits, summing
these values, and dividing by the total
amount of domestic deposits held by
such institutions. Table 1 below
presents data for a hypothetical deposit
product. The national rate for this
hypothetical deposit product would be
1.56 percent, the average of the rates
offered by these banks, weighted by
domestic deposits. Chart 2 compares the
46475
national rate under the current
methodology weighted by branches to
the proposed methodology weighted by
deposits.
Calculation of the average using the
weighted methodology:
TABLE 1
jbell on DSK3GLQ082PROD with PROPOSALS
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Share of
industry
deposits
(%)
Rate
(%)
A .........................................................................................................................................
B .........................................................................................................................................
C .........................................................................................................................................
D .........................................................................................................................................
E .........................................................................................................................................
F .........................................................................................................................................
G .........................................................................................................................................
H .........................................................................................................................................
I ...........................................................................................................................................
J ..........................................................................................................................................
K .........................................................................................................................................
L ..........................................................................................................................................
M .........................................................................................................................................
4,000
3,000
21,000
4,000
23,000
12,000
6,000
76,000
32,000
3,000
9,000
2,000
5,000
2.00
1.50
10.50
2.00
11.50
6.00
3.00
38.00
16.00
1.50
4.50
1.00
2.50
2.30
2.25
2.15
2.05
2.00
1.99
1.75
1.45
1.40
1.00
0.45
0.25
0.15
Total ......................................................................................................................................
200,000
100.00
N/A
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
PO 00000
Frm 00016
Fmt 4702
Sfmt 4702
E:\FR\FM\04SEP1.SGM
04SEP1
EP04SE19.002</GPH>
Total
deposits
Bank
46476
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
is available, including CDs of various
tenors, as well as savings, checking and
MMDAs. These rates would be sorted by
rate offered on the given deposit
product from highest to lowest. An
institution’s percentile would be
determined by taking the sums of the
amounts of domestic deposits held by
the institution and by all the institutions
offering a lower rate, dividing that value
by the total domestic deposits held by
all institutions for which data is
available. The rate offered by the bank
whose percentile was the first at or
above the 95th percentile would be the
rate at the 95th percentile.
In Table 2 below, Bank C is the first
institution offering a rate at or above the
95th percentile. Therefore, Bank C’s rate
of 2.15 percent would be the national
rate cap for this hypothetical deposit
product under the 95th percentile
method.
EP04SE19.004</GPH>
definition, the rates that exceed this
component of the national cap would be
part of the top 5 percent of rates offered,
weighted by domestic deposit share. In
other words, setting the threshold at the
95th percentile would allow institutions
subject to the interest rate restrictions to
compete with all but the top five
percent of offered rates, weighted by
domestic deposit share. This standard is
intended to set a reasonable proxy for
rates that ‘‘significantly exceed’’ the
prevailing rate in that the rate would
allow less than well capitalized
institutions to access market-rate
funding. At the same time, it would
constrain them from being at the very
top of the market.
To determine the rate being offered at
the 95th percentile, the FDIC would
calculate an average rate per institution
for each specific deposit product that
the institution offers, and for which data
28 FDIC would retain discretion to publish more
or less frequently, if needed.
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
PO 00000
Frm 00017
Fmt 4702
Sfmt 4725
E:\FR\FM\04SEP1.SGM
04SEP1
EP04SE19.003</GPH>
jbell on DSK3GLQ082PROD with PROPOSALS
National Rate Cap
The proposal would interpret that a
rate of interest ‘‘significantly exceeds’’
the prevailing rate, or is ‘‘significantly
higher’’ than the prevailing rate, if the
rate of interest exceeds the national rate
cap. The national rate cap would be set
to the higher of (1) the rate offered at the
95th percentile of rates weighted by
domestic deposit share or (2) the
proposed national rate plus 75 basis
points. The FDIC would compute the
permissible national rate cap applicable
for different deposit products and
maturities on a monthly basis, and
would plan to publish such information
on the FDIC’s website on a monthly
basis.28
Rates offered at the 95th Percentile.
Through this proposal, one method for
the national rate cap would be the rate
offered at the 95th percentile of rates
weighted by domestic deposit share. By
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
46477
TABLE 2
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
A .................................................................................
B .................................................................................
C .................................................................................
D .................................................................................
E .................................................................................
F ..................................................................................
G .................................................................................
H .................................................................................
I ...................................................................................
J ..................................................................................
K .................................................................................
L ..................................................................................
M .................................................................................
jbell on DSK3GLQ082PROD with PROPOSALS
National Rate Plus 75 Basis Points.
Through this proposal, the second
method for the national rate cap
methodology would be the proposed
national rate plus 75 basis points. This
method for the national rate cap would
build upon the long-standing
application that an amount that is 75
basis points above the average rates
offered on a particular product is an
appropriate proxy for a rate that
‘‘significantly exceeds’’ or is
‘‘significantly higher’’ than the
prevailing rate. The 75 basis point addon to this national rate cap would also
provide needed flexibility during lowrate environments, or when the rate
paid at the 95th percentile is low due to
a convergence of rates being offered by
banks with relatively large deposit
shares for particular products. In such
cases, the 95th percentile may not
represent a rate that ‘‘significantly
exceeds’’ or is ‘‘significantly higher’’
than the prevailing rate for particular
deposit products.
Proposed Methodology
Weighting the national rate and the
national rate cap by domestic deposits
is more representative of the amount of
deposits placed at offered rates than
weighting by branches (which is a
feature of the current method),
particularly for internet-only banks that
have a large share of deposits but few
branches and tend to pay higher rates.
Moreover, the use of percentiles
decreases the effects of institutions that
may be viewed as pushing down the
average by offering very low published
rates, but at the same time may offer
special features, such as cash bonuses or
negotiated rates, that result in an
effective higher interest expense paid to
depositors than is reflected in the
published rates.
Additionally, utilizing a percentile
methodology would improve the current
VerDate Sep<11>2014
18:28 Sep 03, 2019
Share of
industry
deposits
(%)
Total
deposits
Bank
Jkt 247001
4,000
3,000
21,000
4,000
23,000
12,000
6,000
76,000
32,000
3,000
9,000
2,000
5,000
2.00
1.5
10.5
2.0
11.5
6.0
3.0
38.0
16.0
1.5
4.5
1.0
2.5
national rate cap by providing a more
dynamic calculation. This is because the
distribution of rates offered often
reflects a large mass of rates at the low
end of the market and fewer rates
offered at the high end of the market. As
many commenters noted, this
distribution has caused the current
national rate caps (calculated using a
simple average) to remain low even as
more institutions begin to pay higher
rates. Because one component of the
proposed national rate cap would be
based on rates paid at the 95th
percentile, the effect of having a large
mass of rates at the low end of the
market would not be as pronounced.
There are, however, potential data
limitations with this proposed
methodology. The data gathered from
third party sources is based upon
information provided directly by
institutions or made available via public
sources. As such, some rates being
offered for certain products are left
unreported or unpublished and
therefore may not be captured as part of
the data set used to determine the
national rate caps. If a rate offered by an
institution that has a sizeable market
share of total domestic deposits is not
included in the data sources, then the
national rate cap may not be truly
reflective of the market. In addition, if
the data is not consistently reported or
captured, the national rate cap could be
subject to fluctuations from month to
month due to the methodology’s use of
weighting. To ensure that all reported
rates are incorporated in the national
rate cap, the FDIC would review the
data it receives to ensure that all rate
information that has been provided is
incorporated 29 before making the
29 To the extent possible, staff plans to review the
data for omissions that may have a significant
impact on the national rate and national rate cap.
PO 00000
Frm 00018
Fmt 4702
Sfmt 4702
Cummulative
deposits
200,000
196,000
193,000
172,000
168,000
145,000
133,000
127,000
51,000
19,000
16,000
7,000
5,000
Percentile
(%)
100.0
98.0
96.5
86.0
84.0
72.5
66.5
63.5
25.5
9.5
8.0
3.5
2.5
Rate
(%)
2.30
2.25
2.15
2.05
2.00
1.99
1.75
1.45
1.40
1.00
0.45
0.25
0.15
national rate cap available on the FDIC’s
website.
There may also be other factors (e.g.,
geopolitical changes, changes to the
federal funds rate) that could have an
impact on the rates being offered and
may cause fluctuations in the national
rate cap, given the proposed weighting
by deposit share. Moreover, it is
possible that one institution, or a few
institutions, with a large deposit share
could affect the national rate cap by
withdrawing a product from the market
or by introducing a product into the
market. While such fluctuations, caused
by factors other than data limitations,
would be reflective of changes in the
market, these changes could cause
downward volatility in the national rate
cap. In order to address the effect of this
potential downward volatility, the FDIC
proposes that, for institutions that are
subject to the interest rate restrictions,
any subsequent published national rate
cap, that is lower than the previously
published national rate cap, take effect
3 days after publication. The previously
posted national rate cap would remain
in effect during this 3-day period.
Furthermore, in the event of a
substantial unexpected decrease in the
national rate cap, the FDIC would have
the discretion to delay the date on
which that national rate cap takes effect.
Until the subsequent national rate cap
takes effect, the previously published
national rate cap would remain in effect.
Table 3 below compares the current
and proposed national rate cap based
upon the various deposit maturities
using data from May 20, 2019,30 and
provides the applicable rate cap that is
based upon the higher of the two
proposed national rate caps.
30 Historical data are only available through the
end of May 2019.
E:\FR\FM\04SEP1.SGM
04SEP1
46478
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
TABLE 3—COMPARISON OF THE CURRENT NATIONAL RATE CAP AND THE PROPOSED NATIONAL RATE CAP FOR VARIOUS
DEPOSIT PRODUCTS (AS OF MAY 20, 2019)
Current national
rate cap
Deposit products
Interest Checking .........................................................................................................................................
Savings ........................................................................................................................................................
MMDA ..........................................................................................................................................................
1 month CD .................................................................................................................................................
3 month CD .................................................................................................................................................
6 month CD .................................................................................................................................................
12 month CD ...............................................................................................................................................
24 month CD ...............................................................................................................................................
36 month CD ...............................................................................................................................................
48 month CD ...............................................................................................................................................
60 month CD ...............................................................................................................................................
0.81
0.84
0.93
0.87
0.97
1.16
1.40
1.59
1.72
1.82
1.98
Proposed national
rate cap
0.80*
1.05
1.20
0.85*
0.94*
1.21
2.70
2.65
2.75
2.80
3.00
* For these products, the Proposed Rate Cap as of May 20, 2019, would be based on the weighted mean plus 75 basis points methodology as
of March 2019.
Source: FDIC and RateWatch.
jbell on DSK3GLQ082PROD with PROPOSALS
As part of this proposal, the FDIC
would continue to publish the national
rate cap for the on-tenor maturities
noted above in Table 3.31 If an
institution seeks to offer a product with
an off-tenor maturity for which a rate is
not published by the FDIC, then the
institution would be required to use the
rate offered on the next lowest on-tenor
maturity for that product as the
applicable national rate cap. For
example, an institution seeking to offer
a 26-month CD product must use the
rate offered for the 24-month CD
product as the institution’s national rate
cap.
Historical Data. In determining the
appropriateness of the proposed
methodology for the national rate and
national rate cap, the FDIC reviewed
and considered the proposed national
rate cap’s progression over time relative
to the current and previous rate caps
and top rates from a listing service.
Appendix 1 of this document provides
charts with historical data for the
various maturities. The charts illustrate
that the proposed national rate cap set
to the rate offered at the 95th percentile
would be more reactive to and reflective
of the fluctuations in the interest rate
market than the current national rate
cap for many of the maturities,
particularly those with tenors of 6
months or more and MMDAs. To the
extent that the rate offered at the 95th
percentile is flat, and does not react to
the top payers due to a convergence of
31 On-tenor maturities include the following term
periods: 1-month, 3-month, 6-month, 12-month, 24month, 36-month, 48-month, and 60-month. All
other term periods are considered off-tenor
maturities for purposes of the interest rate
restrictions.
VerDate Sep<11>2014
18:28 Sep 03, 2019
Jkt 247001
rates among the banks with the largest
deposit shares for particular deposit
products (as currently seen with the
interest checking product and the one
and three month CDs), then the national
rate plus 75 basis points would provide
flexibility for institutions to remain
competitive, while still satisfying the
statutory interest rate restrictions
applicable to less than well capitalized
institutions.
Local Rate Cap
Since the 2009 rulemaking,
competition for deposits among insured
depository institutions continues to
grow increasingly digital and therefore
national in scope. Today, a consumer in
any market, including rural markets, can
access rates and shop for deposit
products by checking a variety of
websites. In light of this evolution, the
proposal would continue to presume
that the national rate cap applies to rates
offered on all deposits by less than well
capitalized institutions. However,
because the FDIC’s experience suggests
some institutions still do compete for
particular products within their local
market areas, the proposal would
continue to provide a local rate cap
process.
Specifically, the proposal would
allow less than well capitalized
institutions to provide evidence that any
bank and credit union in its local
market offers a rate on particular deposit
product in excess of the national rate
cap. If sufficient evidence is provided,
then the less than well capitalized
institution would be allowed to offer 90
percent of the competing institution’s
rate on the particular product. This
would replace the current methodology
PO 00000
Frm 00019
Fmt 4702
Sfmt 4702
that requires the local rate cap to be the
average of the rates offered by all
competing institutions, which can
include credit unions, for a particular
product plus 75 basis points.
As part of this proposal, the FDIC
would define an institution’s market
area as any readily defined geographical
area, which may include the State,
county or metropolitan statistical area,
in which the insured depository
institution solicits depositors by offering
rates on a particular deposit product.
Less than well capitalized institutions
that solicit deposit products outside of
their local market area, such as online
listing services, would not be allowed to
offer rates on those nationally-sourced
deposit products in excess of the
national rate cap, and therefore would
not be eligible for a local rate cap
determination for those products.
An institution’s local market rate cap
would be based upon the rate offered on
a particular deposit product type and
maturity period by an insured
depository institution or credit union
that is accepting deposits at a physical
location within the institution’s local
market area. If a less than well
capitalized institution seeks to offer a
product with an off-tenor maturity that
is not offered by competing institutions
within its local market area, then the
institution would use the rate offered on
the next lowest on-tenor maturity for
that product when determining its local
market rate cap. For example, a less
than well capitalized institution seeking
to offer a 26-month CD product would
use the rate offered for a competitor’s
26-month product. In this way, an
institution would be able to take into
consideration rates offered on off-tenor
E:\FR\FM\04SEP1.SGM
04SEP1
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
maturity products in calculating a local
rate cap. If a 26-month product was not
being offered by a competitor, then the
institution would use the rate offered on
a 24-month CD product to calculate the
institution’s local market rate cap.
A less than well capitalized
institution would not be permitted to
calculate its local rate cap based on rates
that are tied to a deposit balance. For
example, if a competing institution
offers different interest rates for
different deposit balances for the same
deposit maturity, the institution may
not pick the highest rate from the
competing institution’s rates. The less
than well capitalized institution should
average the competing institution’s
interest rates for each size deposit
within each maturity period.32 In
addition, a less than well capitalized
institution would be permitted to use
published rates only, rather than
adjusting a competing institution’s rates
to reflect special features, such as cash
incentives being offered by that
competing institution, when calculating
its local market rate cap.
Similarly, for time deposits, the FDIC
would view lack of limits on
withdrawals as a special feature. For
example, if an institution is reviewing a
competitor’s rates on a CD with a five
year stated maturity but only a onemonth limit on withdrawals (or
considering offering such a product
itself), the FDIC would look to the
substance of the product, which is more
akin to a one-month CD, when
considering a less than well capitalized
institution’s request for a local rate
determination.
The proposal would also eliminate
the current two-step process where less
than well capitalized institutions
request a high rate determination from
the FDIC and, if approved, calculate the
prevailing rate within local markets.
Instead, a less than well capitalized
institution would need to notify its
appropriate FDIC regional office that it
intends to offer a rate that is above the
national rate cap and provide evidence
jbell on DSK3GLQ082PROD with PROPOSALS
32 For example, a competing institution may offer,
on the same deposit product, 1 percent interest for
a minimum deposit of $10,000 and 2 percent
interest for a minimum deposit of $100,000. In such
a case, for purposes of the local rate cap, the
competing institution’s interest rate would be 1.5
percent.
VerDate Sep<11>2014
18:28 Sep 03, 2019
Jkt 247001
46479
that it is competing against an
institution or credit union that is
offering a rate in its local market area in
excess of the national rate cap. As
described above, the institution would
then be allowed to offer 90 percent of
the rate offered by a competitor in the
institution’s local market area. The
institution would be expected to
calculate the local rate cap monthly,
maintain records of the rate calculations
for at least two examination cycles and,
upon the FDIC’s request, provide the
documentation to the appropriate FDIC
regional office and to examination staff
during any subsequent examinations.
The proposal to amend the local rate
cap is intended to streamline the current
local rate cap process and provide
additional flexibility for less than well
capitalized institutions to compete with
local competition offering rates in
excess of the national rate cap. This
proposal would also address a popular
promotional method of attracting new
maturity deposits by offering higher
rates on off-tenor products.
account would continue to not be
subject to the interest rate restrictions so
long as no additional funds were
accepted. Interest rate restrictions also
generally apply to any new nonmaturity deposit accounts opened after
the institution falls to below well
capitalized.
The term ‘‘accept’’ is also used in
PCA-triggered restrictions related to
brokered deposits and employee benefit
plan deposits.33 The FDIC plans to
address in a future rulemaking when
deposits are ‘‘accepted’’ for purposes of
these PCA-related restrictions, both for
non-maturity deposits, such as
transaction accounts and MMDAs, as
well as for certificates of deposits and
other time deposits.
Treatment of Non-Maturity Deposits for
Purposes of the Interest Rate
Restrictions
As an alternative to replacing the 75
basis points as the threshold for
‘‘significantly exceeds’’ and the current
simple average methodology for the
national rate, the FDIC considered
retaining the current threshold but
modifying it so that, for a particular
deposit product, the national rate cap
would be 75 basis points added to the
higher of: (1) The current simple average
calculation; or (2) the methodology used
by the FDIC between 1992 and 2009,
i.e., 120 percent or, 130 percent for
wholesale deposits, of the applicable
Treasury security rate, plus 75 basis
points.
Several commenters suggested that
the FDIC allow institutions to pay the
higher of the previous national rate cap,
which tracks the yields on comparable
Treasury securities plus 75 basis points,
or the current national rate cap. Chart 3
below shows the national rate cap based
on Treasury securities from 1996
through the present. The chart also
shows the current rate cap from 2009
forward, as well as the average of top
rates from a listing service from 1996 to
the present.
For purposes of the interest rate
restrictions, the FDIC has from time to
time looked at the question of when
non-maturity deposits in an existing
account are considered ‘‘accepted’’ or
‘‘solicited.’’ The FDIC, through this
proposal, is considering an
interpretation under which nonmaturity deposits are viewed as
‘‘accepted’’ and ‘‘solicited’’ for purposes
of the interest rate restrictions at the
time any new non-maturity deposits are
placed at an institution.
Under this proposed interpretation,
balances in a money market demand
account or other savings account, as
well as transaction accounts, at the time
an institution falls below well
capitalized would not be subject to the
interest rate restrictions. However, if
funds were deposited to such an
account after the institution became less
than well capitalized, the entire balance
of the account would be subject to the
interest rate restrictions. If, however, the
same customer deposited funds into a
new account and the balance in that
account was subject to the interest rate
restrictions, the balance in the initial
PO 00000
Frm 00020
Fmt 4702
Sfmt 4702
V. Alternatives
Below are alternatives that were
considered, and on which the FDIC is
seeking comment, as part of this
proposed rulemaking.
Higher of Two Previous Rate Caps
BILLING CODE 6714–01–P
33 See
E:\FR\FM\04SEP1.SGM
12 U.S.C. 1821(a)(1)(D) and 1831f(a).
04SEP1
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
jbell on DSK3GLQ082PROD with PROPOSALS
BILLING CODE 6714–01–C
Chart 3 illustrates the difficulties in
determining a prevailing market rate
that accurately reflects the true market
value of different deposit products in
changing economic environments. The
method used to calculate the previous
national rate cap (using U.S. Treasury
securities) worked well for many years
because rates on Treasury obligations
tracked closely the rates on deposits. In
2008, however, the rates on Treasury
obligations dropped dramatically
because of a flight to quality during the
financial crisis. Consequently, the yields
on U.S. Treasuries fell faster than
deposit rates and no longer tracked the
rates available on deposits, thereby
prompting the FDIC to change the
national rate to the current simple
average approach. The current approach
provided institutions much needed
relief during the post-crisis years up
until 2015 when, as described above,
rates started increasing and the national
rate cap lagged behind. At the same
time, however, because the current
methodology was so permissive, it
effectively made the interest rate
restrictions non-constraining for less
than well capitalized institutions for
several years.
Today, with the benefit of having data
to review the ability of previous and
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
current national rate calculations to
capture deposit market conditions, it is
apparent that neither measure works in
all interest rate environments. Given
that the method used to calculate the
national rate cap tied to U.S. Treasury
securities works well under certain
economic conditions (high-rate or
rising-rate environments), and the
current method of calculating the
national rate cap works well under other
economic conditions (falling-rate
environment), the FDIC considered
setting the national rate cap applicable
to less than well capitalized institutions
at the higher of the previous and current
rate caps. The FDIC also considered
whether the U.S. Treasury securities
index would warrant a multiplier plus
75 basis points, as previously provided.
The FDIC believes that this alternative
would be simple to administer and
provide immediate and continuous
relief to institutions subject to the
interest rate restrictions. Using a fixed
income product such as U.S. Treasury
securities would also mitigate potential
data limitations in determining a
national rate based solely upon rates
reported to third-party sources.
However, U.S. Treasury securities are
not deposit rates and, as indicated by
the chart above, do not always track
PO 00000
Frm 00021
Fmt 4702
Sfmt 4702
deposit rates. Also, U.S. Treasury
securities do not have the necessary
range of maturities that are prevalent
with deposit products, particularly with
the recent popularity of non-maturity
deposits.34 Moreover, there are certain
rate environments in which neither
alternative might be expected to yield a
rate that ‘‘significantly exceeds’’ or is
‘‘significantly higher’’ than the
prevailing rate, such as a high rate
environment in which Treasury yields
dropped precipitously while deposit
rates remained constant.
Average of the Top-Payers
Some commenters suggested that the
FDIC use an average of the top rates
paid as the national rate cap. As an
example, the FDIC could set the
national rate cap based upon the average
of the top-25 rates offered (by product
type). Under this approach, the FDIC
would interpret that a less than well
capitalized institution ‘‘significantly
exceeds the prevailing rate in its normal
market area’’ if it offers a rate that is
above the average of the top rates
offered in the country. This approach
would be simple to administer and the
34 One option considered is to use the overnight
Federal Funds rate in place of U.S. Treasury
securities for the non-maturity deposit products.
E:\FR\FM\04SEP1.SGM
04SEP1
EP04SE19.005</GPH>
46480
46481
FDIC would be able to provide real-time
rate caps because it would no longer
need to maintain and review the
extensive data it receives from third
party data providers to calculate
averages.
At the same time, setting the
‘‘prevailing rate’’ based upon rates
offered at the top of the market might be
viewed as inconsistent with the FDIC’s
historical interpretation that the
‘‘prevailing rates’’ offered should
include rates offered by all participants
in the market. The subset of banks
paying the highest rate may have a small
market share and have little to no
influence over competitive rates paid in
the market. Further, this same small
subset of banks could be significant
outliers from the rates offered by the
market.
Incorporate Specials and Promotions
Into the Current National Rate
Calculation
products, particularly for maturity
deposits.
Several commenters suggested that
the FDIC change its methodology in
calculating the current national rate and
include additional inputs for the
published rates, such as special
negotiated rates or other monetary
bonus offers. Calculating the national
rate with these special features is
problematic. Foremost, information
regarding special features is not
consistently provided by institutions to
private publications. Additionally, the
data provided by institutions on Call
Reports is limited to a very broad
category of interest expense on nonmaturity deposits and maturity deposits
on only a quarterly basis. Institutions do
not provide details on the interest
expense related to the variety of deposit
Commenters also recommended that
published rates be limited to the highest
rate offered by each depository
institution. According to commenters,
this would prevent a skewing effect on
the national rate by the largest
institutions with the most branches. In
considering this alternative, the FDIC
analyzed the impact of this change. The
chart below compares, for the 12-month
CD, the current national rate cap (using
all branches) and the national rate rap
using the highest rate offered by each
IDI (in other words, each institution gets
‘‘one vote’’). The differences in rates
range from 15 to 52 basis points, with
a range of 25 basis points between 2012
through 2017, as illustrated in Chart 4
below.
In the FDIC’s view, the one-bank, onevote approach, almost by definition
would result in a national rate that may
not be reflective of market rates
currently being offered. Moreover, the
FDIC believes that institutions with
multiple branches and more deposits
have a greater impact on competition
and the market rates. Therefore,
including branches or weighting by
market share is a more reflective way to
calculate the national rate.
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
PO 00000
Frm 00022
Fmt 4702
Sfmt 4702
One Vote per Institution
E:\FR\FM\04SEP1.SGM
04SEP1
EP04SE19.006</GPH>
jbell on DSK3GLQ082PROD with PROPOSALS
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
46482
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
VI. Expected Effects
The interest rate restrictions apply to
an insured depository institution that is
less than well capitalized under the
Prompt Corrective Action (PCA) capital
regime. An institution may be less than
well capitalized either because: (1) Its
capital ratios fall below those set by the
federal banking agencies for an
institution to be deemed well
capitalized; or (2) it otherwise meets the
capital requirements for the well
capitalized category, but is subject to a
written agreement, order, capital
directive, or prompt corrective action
directive issued by its primary regulator
that requires the institution to meet and
maintain a specific capital level for any
capital measure.36
Currently, very few insured
depository institutions are less than
well capitalized. As of March 30, 2019,
there were 5,362 FDIC-insured
institutions. Of these, 22 had capital
ratios that put them in a PCA category
lower than well capitalized and hence,
potentially, affected by the proposed
rule.37 The FDIC reviewed deposit
interest rate information for a sample of
17 of these institutions for which data
were available. Twelve of the 17 paid
deposit interest rates that were less than
both the current and the proposed
national rate caps. Five of these 17
institutions paid interest rates on a
number of deposit products that
exceeded the current national rate cap
but were less than the proposed national
rate cap. A few deposit products at three
of the banks paid rates exceeding both
the current and proposed national rate
caps.
Deposit interest rates paid by less
than well capitalized banks that exceed
the current national rate cap reflect
situations where banks avail themselves
of the local rate cap process. By
generally increasing the level of the
national interest rate caps in the current
interest rate environment, the proposal
can be expected to reduce the need for
less than well capitalized banks to avail
themselves of the local rate cap process.
This is expected to simplify liquidity
planning for these institutions.
In some future less favorable
economic and banking environment,
where the number of less than well
capitalized banks increases
substantially, the effects of the rule
would become more meaningful.
Conceptually, under the proposed
rule, the national rate cap would appear
more responsive to, and reflective of,
changes in the interest rate environment
than is the current national rate cap.
This would likely reduce the potential
for severe liquidity problems or
liquidity failures at viable banks to arise
solely as a result of the operation of the
cap. The FDIC believes this aspect of the
rule is important, although difficult to
quantify given uncertainties about both
the future interest rate environment and
the future condition of banks.
Having a national interest rate cap
that is more reflective of the interest rate
environment may also result in lower
losses to the DIF. In the last financial
crisis, the FDIC encouraged mergers and
problem asset reduction for problems
banks while they were opened as well
as innovations in franchise marketing
for failed bank assets.38 Inappropriately
restricting banks from competing for
deposits could result in expedited
failures and less time for less than well
capitalized institutions to solve their
problems either through asset sales or
mergers.
On the other hand, by generally
increasing the rate caps, the proposed
rule may increase the possibility, as
compared to the current national rate
cap, that a less than well capitalized
institution could continue to fund
imprudent operations by soliciting
insured deposits at high interest rates.
Since the proposal sets the national rate
cap at the greater of the deposit
weighted average rate plus 75 basis
points, or the 95th percentile of deposit
weighted interest rates, two types of
interest rate environments should be
distinguished.
When interest rates are low and the
rates paid by institutions are distributed
over a relatively narrow band, the
‘‘average plus 75 basis points’’ prong of
the rule would likely determine the cap.
The operation of the cap in these low
interest rate environments would be
similar to the current cap, which defines
‘‘significantly exceeds’’ by reference to a
75 basis point difference. In higher or
rising interest rate environments, in
which the deposit interest rates paid by
institutions are widely dispersed, the
‘‘95th percentile’’ prong of the rule
would be more likely to determine the
cap. In these environments, the proposal
would in effect limit the interest rate
paid by a less than well capitalized
institution to less than the top five
percent of deposit weighted rates on
comparable deposit products. This
ensures that the national rate cap will
remain within a defined percentile band
of the distribution of prevailing interest
rates.
The FDIC is interested in commenters
views on the impact of the proposed
rule in less favorable economic
environments, as regard to the objective
of avoiding liquidity problems and
liquidity failures of viable institutions,
and the objective of ensuring that less
than well capitalized institutions do not
solicit deposits at interest rates
significantly exceeding prevailing
interest rates on comparable deposit
products.
35 Section 29 of the FDI Act restricts less than
well capitalized institutions from offering a rate of
interest that is significantly higher than the
prevailing rates of interest on deposits offered by
other insured depository institutions. 12 U.S.C.
1831f(g)(3).
36 FDIC—12 CFR 324.403(b)(1)(v); Board of
Governors of the Federal Reserve System—12 CFR
208.43(b)(1)(v); Office of the Comptroller of the
Currency—12 CFR 6.4(c)(1)(v).
37 The 22 institutions do not include any
quantitatively well capitalized institutions that may
have been administratively classified as less than
well capitalized.
38 Federal Deposit Insurance Corp., Crisis and
Response: An FDIC History, 2008–2013 (2017), pp.
134, 175 (https://www.fdic.gov/bank/historical/
crisis/crisis-complete.pdf).
jbell on DSK3GLQ082PROD with PROPOSALS
Federal Home Loan Bank Borrowing
Rate
Many commenters suggested that the
FDIC amend the current national rate
calculation and use the Federal Home
Loan Bank (FLHB) borrowing rate for
each maturity. The FDIC chose not to
propose the FHLB borrowing rate for
several reasons. The FHLB borrowing
rate is not based upon rates offered by
institutions,35 but is instead based upon
the cost of funds for FHLB member
institutions and requires that FHLBs
obtain and maintain collateral from
their members to secure the advance.
Collateral requirements and borrowing
interest rates may also vary based on an
insured depository institution’s
financial condition. Moreover, FHLB
advances, unlike deposit products, are
not insured and not guaranteed by the
U.S. government. In addition, there are
11 different FHLB districts, all that
establish their own rates that may vary
between districts. As such, the FHLB
borrowing rate would be an imprecise
indicator of rates offered on deposits by
insured depository institutions.
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
PO 00000
Frm 00023
Fmt 4702
Sfmt 4702
Appendix 1
Historical charts illustrating the
proposed national rate cap, the top rates
offered, and the previous and current
national rate caps, where applicable,
since 2005.
E:\FR\FM\04SEP1.SGM
04SEP1
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
PO 00000
Frm 00024
Fmt 4702
Sfmt 4725
E:\FR\FM\04SEP1.SGM
04SEP1
46483
EP04SE19.007</GPH>
jbell on DSK3GLQ082PROD with PROPOSALS
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
46484
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
PO 00000
Frm 00025
Fmt 4702
Sfmt 4725
E:\FR\FM\04SEP1.SGM
04SEP1
EP04SE19.008</GPH>
jbell on DSK3GLQ082PROD with PROPOSALS
4
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
46485
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
PO 00000
Frm 00026
Fmt 4702
Sfmt 4725
E:\FR\FM\04SEP1.SGM
04SEP1
EP04SE19.009</GPH>
jbell on DSK3GLQ082PROD with PROPOSALS
Money Market
46486
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
PO 00000
Frm 00027
Fmt 4702
Sfmt 4725
E:\FR\FM\04SEP1.SGM
04SEP1
EP04SE19.010</GPH>
jbell on DSK3GLQ082PROD with PROPOSALS
One Month CD
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
46487
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
PO 00000
Frm 00028
Fmt 4702
Sfmt 4725
E:\FR\FM\04SEP1.SGM
04SEP1
EP04SE19.011</GPH>
jbell on DSK3GLQ082PROD with PROPOSALS
Three Month CD
46488
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
PO 00000
Frm 00029
Fmt 4702
Sfmt 4725
E:\FR\FM\04SEP1.SGM
04SEP1
EP04SE19.012</GPH>
jbell on DSK3GLQ082PROD with PROPOSALS
Month CD
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
PO 00000
Frm 00030
Fmt 4702
CD
Sfmt 4725
E:\FR\FM\04SEP1.SGM
04SEP1
EP04SE19.013</GPH>
jbell on DSK3GLQ082PROD with PROPOSALS
One
46489
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
jbell on DSK3GLQ082PROD with PROPOSALS
Two
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
PO 00000
Frm 00031
Fmt 4702
CD
Sfmt 4725
E:\FR\FM\04SEP1.SGM
04SEP1
EP04SE19.014</GPH>
46490
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
46491
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
PO 00000
Frm 00032
Fmt 4702
Sfmt 4725
E:\FR\FM\04SEP1.SGM
04SEP1
EP04SE19.015</GPH>
jbell on DSK3GLQ082PROD with PROPOSALS
CD
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
jbell on DSK3GLQ082PROD with PROPOSALS
I. Request for Comment
The FDIC invites comment from all
members of the public regarding all
aspects of the proposal, including the
alternatives considered. This request for
comment is limited to this proposal.
The FDIC will carefully consider all
comments that relate to the proposal. In
particular, the FDIC invite comment on
the following questions:
Question 1. Does the proposed
calculation of the rate caps enable less
than well capitalized institutions to
compete for deposits while satisfying
section 29? If not, please explain why.
Question 2. The FDIC proposes to
update the national rate cap information
every month, with discretion to update
the rate cap more or less frequently.
Currently, the FDIC updates this
information on a weekly basis. Should
national rate calculations be provided
more or less frequently than every
month, as proposed?
Question 3. U.S. Treasury securities
do not have maturities that are
comparable to non-maturity deposit
products (e.g., money market or interest
checking). If the FDIC were to use U.S.
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
Treasury securities in its calculation for
the national rate cap, is there a fixed
income product that could be used in
place of U.S. Treasury securities as a
proxy for the national rate cap for nonmaturity deposit products?
Question 4. The proposed national
rate and rate cap are weighted by
deposit share, which gives relatively
more influence to internet-only
institutions that have large deposit
shares than the current all-branch
approach. Is this weighting system
appropriate?
Question 5. To address potential
downward volatility in the national rate
cap, the FDIC is proposing that, for
institutions that are subject to the
interest rate restrictions, any subsequent
published national rate cap, that is
lower than the previously published
national rate cap, take effect 3 days after
publication. In certain circumstances,
the FDIC would also have discretion to
delay the date on which a national rate
cap takes effect. Is this a reasonable
approach to address the effects of
potential downward volatility in the
national rate cap? Are there other ways
to address or reduce the effect of
PO 00000
Frm 00033
Fmt 4702
Sfmt 4702
potential volatility on less than well
capitalized institutions that are subject
to the interest rate restrictions?
Question 6. Data limitations do not
allow consistent means to include
certain special promotions, like cash
bonuses, to be included in the proposed
national rate calculations. Is it
appropriate to incorporate specials and
promotions? Is there another way to
capture these promotions or deposit
products that pay interest based upon
an index or are triggered at some future
date (e.g., step-up rates)?
Question 7. The proposed national
rate plus 75 basis points is being
proposed as an option for products
whose rates converge, as seen with a
few deposit products. While this
appears to be a useful alternative for a
few products in the current rate
environment, it might be less
appropriate in other rate environments.
For example, this alternative could yield
a rate cap that does not ‘‘significantly
exceed’’ the prevailing rate in a high
rate environment. Are there better
options for setting a proxy to determine
what it means to ‘‘significantly exceed’’
E:\FR\FM\04SEP1.SGM
04SEP1
EP04SE19.016</GPH>
46492
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
a prevailing market rate when rates
converge?
Question 8. Should the local rate be
exclusively limited to institutions with
a smaller geographical footprint? If so,
how should eligibility be determined?
Question 9. If there is significant
movement downwards in the national
rate cap from one publication period to
the next, do institutions need additional
time to lower interest rates on particular
products in an effort to be in
compliance with the rate caps? If so,
what is an appropriate amount of time?
Question 10. internet institutions are
not included in the local deposit rate
calculation. Is this a reasonable
approach? If the FDIC allowed
institutions to use internet competitors
in their local rate calculations, how
would they choose such competitors
and which ones should be chosen?
Question 11. For purposes of the rate
restrictions, the FDIC is considering an
interpretation under which balances in
non-maturity deposit accounts at the
time the institution becomes less than
well capitalized are not subject to the
interest rate restrictions, but the balance
would be if new funds were deposited
into such accounts. Is this interpretation
appropriate? Would there be substantial
operational difficulties for institutions
to monitor additions to these existing
accounts in order to determine when
they would be subject to the interest rate
restrictions?
VI. Administrative Law Matters
A. Paperwork Reduction Act
In accordance with the requirements
of the Paperwork Reduction Act (PRA)
of 1995, 44 U.S.C. 3501–3521, the FDIC
may not conduct or sponsor, and the
respondent is not required to respond
to, an information collection unless it
displays a currently valid Office of
Management and Budget (OMB) control
number. This proposed rule does not
create a new or revise an existing
information collection. Therefore, no
Paperwork Reduction Act clearance
submission to OMB will be made.
jbell on DSK3GLQ082PROD with PROPOSALS
B. Solicitation of Comments on Use of
Plain Language
39 Public Law 106–102, 113 Stat. 1338, 1471 (Nov.
12, 1999).
16:53 Sep 03, 2019
Jkt 247001
C. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA)
requires that, in connection with a
proposed rule, an agency prepare and
make available for public comment an
initial regulatory flexibility analysis that
describes the impact of the proposed
rule on small entities.40 However, a
regulatory flexibility analysis is not
required if the agency certifies that the
proposed rule will not have a significant
economic impact on a substantial
number of small entities, and publishes
its certification and a short explanatory
statement in the Federal Register
together with the proposed rule. The
Small Business Administration (SBA)
has defined ‘‘small entities’’ to include
banking organizations with total assets
of less than or equal to $550 million that
are independently owned and operated
or owned by a holding company with
less than or equal to $550 million in
total assets.41
Generally, the FDIC considers a
significant effect to be a quantified effect
in excess of 5 percent of total annual
salaries and benefits per institution, or
2.5 percent of total noninterest
expenses. The FDIC believes that effects
in excess of these thresholds typically
represent significant effects for FDICinsured institutions.
The FDIC is proposing revisions to its
regulations relating to interest rate
restrictions that apply to less than well
capitalized insured depository
institutions, by amending the
methodology for calculating the national
rate and national rate cap. The proposal
40 5
Section 722 of the Gramm-Leach
Bliley Act,39 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:
VerDate Sep<11>2014
• 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?
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.
41 The
PO 00000
Frm 00034
Fmt 4702
Sfmt 4702
46493
would also modify the current local rate
cap calculation and process.
Specifically, the proposal defines the
national rate for a deposit product as the
average rate for that product, where the
average is weighted by domestic deposit
share. The proposed national rate cap is
the higher of (1) the rate offered at the
95th percentile of rates weighted by
domestic deposit share or (2) the
proposed national rate plus 75 basis
points.
Because the FDIC’s experience
suggests some institutions compete for
particular products within their local
market area, the proposal would
continue to provide a local rate cap
process.
Specifically, the proposal would
allow less than well capitalized
institutions to provide evidence that any
bank or credit union in its local market
offers a rate on particular deposit
product in excess of the national rate
cap. If sufficient evidence is provided,
then the less than well capitalized
institution would be allowed to offer 90
percent of the competing institution’s
rate on the particular product. For the
reasons discussed below, the FDIC
certifies that the proposed rule will not
have a significant economic effect on a
substantial number of small entities.
Based on March 31, 2019, Call Report
data, the FDIC insures 5,362 depository
institutions, of which 3,920 are
considered small entities for the
purposes of RFA.42 As of March 31,
2019, 20 small, FDIC-insured depository
institutions were less than well
capitalized.43 This represents less than
two-fifths of one percent of all FDICinsured institutions as of March 31,
2019, and approximately one-half of one
percent of small, FDIC-insured
institutions. For 17 small institutions
that were less than well capitalized as
of March 31, 2019, and that reported
rates to a private data aggregator, FDIC
analysts compared the national rate caps
calculated under the current
methodology with the national rate caps
which would have been in effect under
the proposal during the month of March
across 11 deposit products.44 As
42 March
31, 2019, FFIEC Call Report.
The 20 institutions do not include any
quantitatively well capitalized institutions that may
have been administratively classified as less than
well capitalized.
44 The 11 products are savings accounts, interest
checking accounts, money market deposit accounts,
1-month, 3-month, 6-month, 12-month, 24-month,
36-month, 48-month, and 60-month CDs. Jumbo
and non-jumbo rate caps reported for the week of
March 4, 2019, were averaged for each of the 11
products to calculate a single rate cap per product
under the current methodology. (https://
www.fdic.gov/regulations/resources/rates/
historical/2019-03-04.html).
43 Id.
E:\FR\FM\04SEP1.SGM
04SEP1
jbell on DSK3GLQ082PROD with PROPOSALS
46494
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
described in more detail below, the
analysis shows that the proposed
national rate caps are less restrictive
than the current national rate caps, and
would reduce the likelihood that less
than well capitalized institutions would
need to avail themselves of the local rate
cap determination process.
Five of the 17 (just under 30 percent)
less than well capitalized institutions
for which data were available reported
offering rates above the national rate
caps calculated under the current
methodology for seven out of the 11
products considered.45 Under the
proposed methodology, three
institutions reported rates above the
national rate caps on two products.
Thus, the number of deposit products
with rates constrained by the national
rate cap is reduced for all five
institutions, and two of those
institutions would be relieved of the
need to avail themselves of the local rate
cap determination process.
For the 3-month, 6-month, 36-month,
and 48-month CD products, two less
than well capitalized small institutions
reported offering rates above the
national rate caps calculated under the
current methodology. On average, the
reported offering rates were 6, 13, 29,
and 58 basis points above the national
rate caps, respectively.
Three institutions reported offering
rates above the national rate caps
calculated under the current
methodology for the 12-month and 24month CD products, and four reported
offering rates above the national rate
caps as currently calculated for the 60month CD product. Rates offered on the
12-month and 24-month CD products
were 37 and 45 basis points above the
national rate caps, on average. Rates
offered on the 60-month CD product
averaged 26 basis points above the
national rate cap for that product.
Across all deposit products offered at
rates above the national rate caps
calculated under the current
methodology, the rates offered were 30
basis points above the national rate caps
on average.
Had the national rate caps in effect at
the time been calculated under the
proposed methodology, then two less
than well capitalized small institutions
would have reported offering rates that
averaged 11 basis points above the
national rate cap for the 3-month CD
product, and one institution would have
reported offering a rate three basis
45 This is not meant to suggest that these
institutions are not in compliance with the national
rate caps, but rather that they have sought and
received local rate determinations that allow them
to offer certain products at rates above the national
caps.
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
points above the national rate cap for
the 48-month CD product.
Across all deposit products offered at
rates above the national rate caps
calculated under the proposed
methodology, the rates offered were 7
basis points above the national rate caps
on average.
No less than well capitalized small
institution reported offering a rate above
the national rate caps calculated under
the current or proposed methodology for
savings, interest checking, MMDA, or 1month CD products during the
timeframe considered.
The number of small, less than well
capitalized institutions with offered
rates above the national rate caps falls
from five under the current
methodology to three under the
proposed methodology. Thus, the
number of small less than well
capitalized institutions that need to rely
on a local rate cap is expected to fall.
The FDIC cannot more precisely
quantify the effects of the proposed rule
relative to the current methodology
because it lacks data on the dollar
amounts placed in deposit products
broken down by the rates offered.
However, few small institutions are less
than well capitalized, and most of those
small, less than well capitalized
institutions for which data were
available reported rates across the 11
deposit products considered that were
below the national rate caps as
calculated under both the current and
proposed methodologies. For the few
less than well capitalized institutions as
of March 31, 2019 whose deposit
interest rates are constrained by the
current national rate cap but not the
proposed rate cap, the effect of the rule
would be burden reducing in the sense
of reducing the need for local rate cap
determinations.
Based on the foregoing information,
the FDIC certifies that the proposed rule
will not significantly affect a substantial
number of small entities. The FDIC
welcomes comments on its analysis.
Specifically, what data would help the
FDIC better quantify the effects of the
proposal compared with the current
methodology?
D. Riegle Community Development and
Regulatory Improvement Act
Section 302 of 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
PO 00000
Frm 00035
Fmt 4702
Sfmt 4702
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.46 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.
Because the proposal would not
impose additional reporting, disclosure,
or other requirements on IDIs, section
302 of the RCDRIA therefore does not
apply. Nevertheless, the requirements of
RCDRIA will be considered as part of
the overall rulemaking process. In
addition, the FDIC also invites any other
comments that further will inform the
FDIC’s consideration of RCDRIA.
List of Subjects in 12 CFR Part 337
Banks, Banking, Reporting and
recordkeeping requirements, Savings
associations, Securities.
Authority and Issuance
For the reasons stated in the
preamble, the FDIC proposes to amend
12 CFR part 337 as follows:
PART 337—UNSAFE AND UNSOUND
BANKING PRACTICES
1. The authority for 12 CFR part 337
continues to read:
■
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.
2. Amend § 337.6 as follows:
a. Revise paragraphs (a) introductory
text and (a)(3)(i) through (iii);
■ b. Remove paragraph (a)(5)(iii);
■ c. Remove paragraphs (b)(2)(ii) and
(b)(3)(ii) and redesignate paragraphs
(b)(2)(i) and (b)(3)(i) as paragraphs (b)(2)
and (3); and
■ d. Remove paragraph (f).
The revisions read as follows:
■
■
§ 337.6
Brokered deposits.
(a) Definitions. For the purposes of
this section and § 337.7, the following
definitions apply:
*
*
*
*
*
(3) * * *
(i) For purposes of section 29 of the
Federal Deposit Insurance Act, this
section, and § 337.7, the terms well
capitalized, adequately capitalized, and
46 12
E:\FR\FM\04SEP1.SGM
U.S.C. 4802.
04SEP1
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules
undercapitalized,11 shall have the same
meaning for each insured depository
institution as provided under
regulations implementing section 38 of
the Federal Deposit Insurance Act
issued by the appropriate federal
banking agency for that institution.12
(ii) If the appropriate federal banking
agency reclassifies a well capitalized
insured depository institution as
adequately capitalized pursuant to
section 38 of the Federal Deposit
Insurance Act, the institution so
reclassified shall be subject to the
provisions applicable to such lower
capital category under this section and
§ 337.7.
(iii) An insured depository institution
shall be deemed to be within a given
capital category for purposes of this
section and § 337.7 as of the date the
institution is notified of, or is deemed
to have notice of, its capital category,
under regulations implementing section
38 of the Federal Deposit Insurance Act
issued by the appropriate federal
banking agency for that institution.13
*
*
*
*
*
■ 3. Add § 337.7 to read as follows:
§ 337.7
Interest rate restrictions.
jbell on DSK3GLQ082PROD with PROPOSALS
(a) Definitions—(1) National rate. The
weighted average of rates paid by all
insured depository institutions on a
given deposit product, for which data
are available, where the weights are
each institution’s market share of
domestic deposits.
(2) National rate cap. The higher of:
(i) The interest rate offered on a
particular deposit product at the 95th
11 The term undercapitalized includes any
institution that is significantly undercapitalized or
critically undercapitalized under regulations
implementing section 38 of the Federal Deposit
Insurance Act and issued by the appropriate federal
banking agency for that institution.
12 For the most part, the capital measure terms are
defined in the following regulations: FDIC—12 CFR
part 324, subpart H; Board of Governors of the
Federal Reserve System—12 CFR part 208; and
Office of the Comptroller of the Currency—12 CFR
part 6.
13 The regulations implementing section 38 of the
Federal Deposit Insurance Act and issued by the
federal banking agencies generally provide that an
insured depository institution is deemed to have
been notified of its capital levels and its capital
category as of the most recent date: (1) A
Consolidated Report of Condition and Income is
required to be filed with the appropriate federal
banking agency; (2) A final report of examination
is delivered to the institution; or (3) Written notice
is provided by the appropriate federal banking
agency to the institution of its capital category for
purposes of section 38 of the Federal Deposit
Insurance Act and implementing regulations or that
the institution’s capital category has changed.
Provisions specifying the effective date of
determination of capital category are generally
published in the following regulations: FDIC—12
CFR 324.402; Board of Governors of the Federal
Reserve System—12 CFR part 208, subpart D; and
Office of the Comptroller of the Currency—12 CFR
6.3.
VerDate Sep<11>2014
16:53 Sep 03, 2019
Jkt 247001
percentile by insured depository
institutions, for which data is available,
weighted by each institution’s share of
total domestic deposits; or
(ii) The national rate plus 75 basis
points.
(3) Local market rate cap. 90 percent
of the highest interest rate paid on a
particular deposit product in the
institution’s local market area. An
institution’s local market rate cap shall
be based upon the rate offered on a
particular product type and maturity
period by an insured depository
institution or credit union that is
accepting deposits at a physical location
within the institution’s local market
area.
(4) Local market area. An institution’s
local market area is any readily defined
geographical area, which may include
the State, county or metropolitan
statistical area, in which the insured
depository institution solicits depositors
by offering rates on a particular deposit
product.
(5) On-tenor and off-tenor maturities.
On-tenor maturities include the
following term periods: 1-month, 3month, 6-month, 12-month, 24-month,
36-month, 48-month, and 60-month. All
other term periods are considered offtenor maturities for purposes of this
section.
(b) Computation and publication of
national rate cap—(1) Computation.
The Corporation will compute the
national rate cap for different deposit
products and maturities, as determined
by the Corporation based on available
and reported data.
(2) Publication. The Corporation will
publish the national rate cap monthly,
but reserves the discretion to publish
more or less frequently, if needed, on
the Corporation’s website. Except as
provided in paragraph (e) of this
section, for institutions that are less
than well capitalized at the time of
publication, a national rate cap that is
lower than the previously published
national rate cap will take effect 3 days
after publication. The previously
published national rate cap will remain
in effect during this 3-day period.
(c) Application—(1) Well capitalized
institutions. A well capitalized
institution may pay interest without
restriction under this section.
(2) Institutions that are not well
capitalized. An institution that is not
well capitalized may not accept or
solicit deposits by offering a rate of
interest on any deposit which exceeds
the national rate cap. A less than well
capitalized institution that seeks to pay
a rate above the national rate cap but not
exceeding its local market rate cap,
PO 00000
Frm 00036
Fmt 4702
Sfmt 9990
46495
should follow the notice provisions in
paragraph (d) of this section.
(d) Notice related to local market rate
cap applicability. An insured depository
institution that seeks to pay a rate of
interest up to its local market rate cap
shall provide notice and evidence of the
highest rate paid on a particular deposit
product in the institution’s local market
area to the appropriate regional director.
The institution shall update its evidence
and calculations periodically, as
requested by the appropriate regional
director, and make such information
available for inspection by examination
staff.
(e) Offering products with off-tenor
maturities. If an institution seeks to
accept or solicit by offering a product
with an off-tenor maturity for which the
Corporation does not publish the
national rate cap or that is not accepted
or solicited by competing institutions
within its local market area, then the
institution will be required to use the
rate accepted or solicited on the next
lowest on-tenor maturity for that
product when determining its
applicable national or local market rate
cap. For example, an institution seeking
to accept or solicit a 26-month
certificate of deposit must use the rate
offered for a 24-month certificate of
deposit to determine the institution’s
applicable national or local market rate
cap.
(f) Discretion to delay effect of
published national rate cap. In the
event of a substantial unexpected
decrease in the published national rate
cap from one month to the next, the
Corporation may, in its discretion, delay
the date on which the published
national rate cap takes effect. The
previously published national rate cap
will remain in effect until the effective
date, as determined by the Corporation,
of the subsequent published national
rate cap.
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on August 20,
2019.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2019–18360 Filed 9–3–19; 8:45 am]
BILLING CODE 6714–01–P
E:\FR\FM\04SEP1.SGM
04SEP1
]]>Agencies
[Federal Register Volume 84, Number 171 (Wednesday, September 4, 2019)]
[Proposed Rules]
[Pages 46470-46495]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18360]
=======================================================================
-----------------------------------------------------------------------
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 337
RIN 3064-AF02
Interest Rate Restrictions on Institutions That Are Less Than
Well Capitalized
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The FDIC is seeking comment on proposed revisions to its
regulations relating to interest rate restrictions that apply to less
than well capitalized insured depository institutions. Under the
proposed rule, the FDIC would amend the methodology for calculating the
national rate and national rate cap for specific deposit products. The
national rate would be the weighted average of rates paid by all
insured depository institutions on a given deposit product, for which
data are available, where the weights are each institution's market
share of domestic deposits. The national rate cap for particular
products would be set at the higher of the 95th percentile of rates
paid by insured depository institutions weighted by each institution's
share of total domestic deposits, or the proposed national rate plus 75
basis points. The proposed rule would also greatly simplify the current
local rate cap calculation and process by allowing less than well
capitalized institutions to offer up to 90 percent of the highest rate
paid on a particular deposit product in the institution's local market
area.
DATES: Comments will be accepted until November 4, 2019.
ADDRESSES: You may submit comments on the notice of proposed rulemaking
using any of the following methods:
Agency website: https://www.fdic.gov/regulations/laws/federal/. Follow the instructions for submitting comments on the agency
website.
Email: [email protected]. Include RIN 3064-AF02 on the
subject line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments, Federal Deposit Insurance Corporation, 550 17th Street NW,
Washington, DC 20429.
Hand Delivery: Comments may be hand delivered to the guard
station at the rear of the 550 17th Street NW building (located on F
Street) on business days between 7 a.m. and 5 p.m.
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Public Inspection: All comments received, including any
personal information provided, will be posted generally without change
to https://www.fdic.gov/regulations/laws/federal. Paper copies of
public comments may be ordered from the FDIC Public Information Center,
3501 North Fairfax Drive, Room E-1002, Arlington, VA 22226, or by
telephone at (877) 275-3342 or (703) 562-2200.
FOR FURTHER INFORMATION CONTACT: Legal Division: Vivek V. Khare,
Counsel, (202) 898-6847, [email protected]; Thomas Hearn, Counsel, (202)
898-6967, [email protected]; 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].
SUPPLEMENTARY INFORMATION:
Policy Objectives
On December 18, 2018, the FDIC Board adopted an advance notice of
proposed rulemaking (ANPR) to obtain input from the public on its
brokered deposit and interest rate regulations in light of significant
changes in technology, business models, the economic environment, and
products
[[Page 46471]]
since the regulations were adopted.\1\ As described in the ANPR,
interest rates have been rising, however the national rate that is used
to calculate rate caps applicable to less than well capitalized banks
has stayed low because of market dynamics, including the introduction
of new deposit products and features. In an effort to ensure that the
national rate cap is reflective of the prevailing rates offered by
institutions, the FDIC sought comment on all aspects of its regulatory
approach relating to the interest rate restrictions, and specifically
asked for comment on potential changes to the methodology used to
calculate the national rate. The policy objective of this NPR is to
seek comment on a proposal that attempts to ensure that deposit
interest rate caps appropriately reflect the prevailing deposit
interest rate environment, while continuing to ensure that less than
well capitalized institutions do not solicit deposits by offering
interest rates that significantly exceed prevailing rates on comparable
deposit products. The FDIC anticipates that another NPR that addresses
policy issues related to brokered deposits more generally will be
issued at a later date.
---------------------------------------------------------------------------
\1\ The ANPR was published for comment in the Federal Register
on February 6, 2019. (84 FR 2366)
---------------------------------------------------------------------------
I. Background
Section 224 of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA) added section 29 to the Federal
Deposit Insurance (FDI) Act titled ``Brokered Deposits.'' The law
originally restricted ``troubled'' insured depository institutions
without a waiver from (1) accepting deposits from a deposit broker and
(2) soliciting deposits by offering rates of interest on deposits that
are significantly higher than the prevailing rates of interest on
deposits offered by other insured depository institutions
(``institutions'' or ``banks'') having the same type of charter in such
depository institution's normal market area.\2\ Section 29 defined a
``troubled institution'' as an undercapitalized institution. Congress
took further action two years later by enacting the Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA). As part of
FDICIA, Congress made several amendments to align section 29 of the FDI
Act with the prompt corrective action (PCA) framework.\3\ One of these
amendments broadened the applicability of section 29 from ``troubled
institutions'' (i.e., undercapitalized banks) to any insured depository
institution that is not well capitalized.
---------------------------------------------------------------------------
\2\ Public Law 101-73, August 9, 1989, 103 Stat. 183.
\3\ The PCA capital thresholds are: (1) Well capitalized; (2)
adequately capitalized; (3) undercapitalized; (4) significantly
undercapitalized; and (5) critically undercapitalized.
---------------------------------------------------------------------------
Statutory Provisions Related to the Interest Rate Restrictions
Under section 29, well capitalized institutions are not restricted
in paying any rate of interest on any deposit. However, the statute
imposes interest rate restrictions on categories of insured depository
institutions that are less than well capitalized. These categories are
(1) adequately capitalized institutions with waivers to accept brokered
deposits (including reciprocal deposits excluded from being considered
brokered deposits); \4\ (2) adequately capitalized institutions without
waivers to accept brokered deposits; \5\ and (3) undercapitalized
institutions.\6\ The statutory restrictions for each category are
described in detail below.
---------------------------------------------------------------------------
\4\ 12 U.S.C. 1831f(e).
\5\ 12 U.S.C. 1831f(g)(3).
\6\ 12 U.S.C. 1831f(h).
---------------------------------------------------------------------------
Adequately capitalized institutions with waivers to accept brokered
deposits. Institutions in this category may not pay a rate of interest
on deposits that ``significantly exceeds'' the following: ``(1) The
rate paid on deposits of similar maturity in such institution's normal
market area for deposits accepted in the institution's normal market
area; or (2) the national rate paid on deposits of comparable maturity,
as established by the [FDIC], for deposits accepted outside the
institution's normal market area.'' \7\
---------------------------------------------------------------------------
\7\ 12 U.S.C. 1831f(e).
---------------------------------------------------------------------------
Adequately capitalized institutions without waivers to accept
brokered deposits. In this category, institutions may not offer rates
that ``are significantly higher than the prevailing rates of interest
on deposits offered by other insured depository institutions in such
depository institution's normal market area.'' \8\ For institutions in
this category, the statute restricts interest rates in an indirect
manner. Rather than simply setting forth an interest rate restriction
for adequately capitalized institutions without a waiver to accept
brokered deposits, the statute defines the term ``deposit broker'' to
include ``any insured depository institution that is not well
capitalized . . . which engages, directly or indirectly, in the
solicitation of deposits by offering rates of interest which are
significantly higher than the prevailing rates of interest on deposits
offered by other insured depository institutions in such depository
institution's normal market area.'' \9\ In other words, the depository
institution itself is a ``deposit broker'' if it offers rates
significantly higher than the prevailing rates in its own ``normal
market area.'' Without a waiver, the institution cannot accept deposits
from a ``deposit broker.'' Thus, the institution cannot accept these
deposits from itself. In this indirect manner, the statute prohibits
institutions in this category from offering rates significantly higher
than the prevailing rates in the institution's ``normal market area.''
---------------------------------------------------------------------------
\8\ 12 U.S.C. 1831f(g)(3).
\9\ Id.
---------------------------------------------------------------------------
Undercapitalized institutions. In this category, institutions may
not solicit deposits by offering rates ``that are significantly higher
than the prevailing rates of interest on insured deposits (1) in such
institution's normal market area; or (2) in the market area in which
such deposits would otherwise be accepted.'' \10\
---------------------------------------------------------------------------
\10\ 12 U.S.C. 1831f(h).
---------------------------------------------------------------------------
II. Regulatory Approach
The FDIC has implemented the statutory interest rate restrictions
through two rulemakings.\11\ While the statutory provisions noted above
set forth a basic framework based upon capital categories, they do not
provide certain key details, such as definitions of the terms
``significantly exceeds,'' ``significantly higher,'' ``market,'' and
``national rate.'' As a result, the FDIC defined these key terms via
rulemaking in 1992. Both the ``national rate'' calculation and the
application of the interest rate restrictions were updated in a 2009
rulemaking.
---------------------------------------------------------------------------
\11\ 57 FR 23933 (1992); 74 FR 26516 (2009).
\12\ The FDIC has not viewed the slight verbal variations in
these provisions as reflecting a legislative intent that they have
different meaning and so the agency has, through rulemaking,
construed the same meaning for these two phrases.
\13\ 12 CFR 337.6(b)(2)(ii), (b)(3)(ii) and (b)(4). The FDIC
first defined ``significantly higher'' as 50 basis points. 55 FR
39135 (1990). As part of the 1992 rulemaking, commenters suggested
that the FDIC define ``significantly higher'' as 100 basis points.
In response, the FDIC defined ``significantly higher'' as 75 basis
points.
---------------------------------------------------------------------------
``Significantly Exceeds'' or ``Significantly Higher.'' \12\ Through
both the 1992 and the 2009 rulemakings, the FDIC has interpreted that a
rate of interest ``significantly exceeds'' another rate, or is
``significantly higher'' than another rate, if the first rate exceeds
the second rate by more than 75 basis points.\13\ In adopting this
standard in 1992, and subsequently retaining it in 2009, the FDIC
offered the following explanation: ``Based upon the FDIC's experience
with the brokered deposit prohibitions to date, it is believed that
this number will allow insured depository institutions subject to the
[[Page 46472]]
interest rate ceilings . . . to compete for funds within markets, and
yet constrain their ability to attract funds by paying rates
significantly higher than prevailing rates.'' \14\
---------------------------------------------------------------------------
\14\ 57 FR 23933, 23939 (1992); 74 FR 26516, 26520 (2009).
---------------------------------------------------------------------------
``Market.'' In the FDIC's regulations, as implemented through both
the 1992 and 2009 rulemaking, the term ``market'' is ``any readily
defined geographical area in which the rates offered by any one insured
depository institution soliciting deposits in that area may affect the
rates offered by other insured depository institutions in the same
area.'' \15\ The FDIC determines an institution's market area on a
case-by-case basis.\16\
---------------------------------------------------------------------------
\15\ 57 FR 23933 (1992) and 74 FR 26516 (2009).
\16\ 12 CFR 337.6(f).
---------------------------------------------------------------------------
The ``National Rate.'' As part of the 1992 rulemaking, the
``national rate'' was defined as follows: ``(1) 120 percent of the
current yield on similar maturity U.S. Treasury obligations; or (2) In
the case of any deposit at least half of which is uninsured, 130
percent of such applicable yield.'' In defining the ``national rate''
in this manner, the FDIC understood that the spread between Treasury
securities and depository institution deposits can fluctuate
substantially over time but relied upon the fact that such a definition
is ``objective and simple to administer.'' \17\ By using percentages
(120 percent, or 130 percent for wholesale deposits, of the yield on
U.S. Treasury obligations) instead of a fixed number of basis points,
the FDIC hoped to ``allow for greater flexibility should the spread to
Treasury securities widen in a rising interest rate environment.''
Additionally, at the time of the 1992 rulemaking, the FDIC did not have
readily available data on actual deposit rates paid and used Treasury
rates as a proxy.
---------------------------------------------------------------------------
\17\ 57 FR 23933, 23938 (June 5, 1992).
---------------------------------------------------------------------------
Prior to the 2009 rulemaking, yields on Treasury securities began
to plummet, driven by global economic uncertainties, which resulted in
a ``national rate'' that was lower than deposit rates offered by many
institutions. As part of the 2009 rulemaking, with the benefit of
having data on offered rates available on a substantially real-time
basis, the FDIC redefined the ``national rate'' as ``a simple average
of rates paid by all insured depository institutions and branches for
which data are available.'' \18\ At that time, the FDIC noted that the
``national rate'' methodology represents an objective average of rates
paid by all reporting insured depository institutions for particular
products.
---------------------------------------------------------------------------
\18\ 74 FR 26516 (2009).
---------------------------------------------------------------------------
The ``Prevailing Rate''
The FDIC has recognized, as part of its regulation on interest rate
restrictions, that competition for deposit pricing has become
increasingly national in scope. Therefore, through the 2009 rulemaking,
the FDIC presumes that the prevailing rate in an institution's market
areas is the FDIC-defined national rate.\19\
---------------------------------------------------------------------------
\19\ 74 FR 26516 at 26519 (2009).
---------------------------------------------------------------------------
Application of the Interest Rate Restrictions
A bank that is not well capitalized generally may not offer deposit
rates more than 75 basis points above the national rate for deposits of
similar size and maturity.\20\
---------------------------------------------------------------------------
\20\ 12 CFR 337.6(b)(2)(ii)(B). Well capitalized banks are not
subject to the interest rate restrictions in Sec. 337.6. However, a
quantitatively ``well capitalized'' bank subject to a written
agreement, order to cease and desist, capital directive, or prompt
corrective action directive which includes a capital maintenance
provision, is reclassified as adequately capitalized for Sec. 337.6
purposes.
---------------------------------------------------------------------------
As noted above, the national rate is defined as a simple average of
rates paid by all insured depository institutions and branches that
offer and publish rates for specific products. These products include
non-jumbo and jumbo CDs of various maturities, as well as savings,
checking and money market deposit accounts (MMDAs).\21\ The FDIC
receives interest rate data on various deposit products from a private
data aggregator on a weekly basis. The data aggregator computes the
simple averages for the various deposit products as well as the
corresponding national rate cap by adding 75 basis points to each
simple average. The FDIC then publishes on a weekly basis the national
rate simple averages and corresponding national rate caps on its
website.\22\
---------------------------------------------------------------------------
\21\ Jumbo accounts are accounts with deposits greater or equal
to $100,000.
\22\ Available at: https://www.fdic.gov/regulations/resources/rates/.
---------------------------------------------------------------------------
If the posted national rates differ from the actual rates in a
bank's local market area, the bank may present evidence to the FDIC
that the prevailing rate in a particular market is higher than the
national rate.\23\ If the FDIC agrees with this evidence,\24\ the
institution would be permitted to pay as much as 75 basis points above
the local prevailing rate for deposits solicited in its local market
areas. For deposits that are solicited on the internet or otherwise
outside its local market, the institution would have to offer rates
that do not exceed the national rate cap. In evaluating this evidence,
the FDIC may use segmented market rate information (for example,
evidence by State, county or metropolitan statistical area). Also, the
FDIC may consider evidence as to the rates offered by credit unions but
only if the insured depository institution competes directly with the
credit unions in the particular market.
---------------------------------------------------------------------------
\23\ 12 CFR 337.6(f).
\24\ The procedures for seeking such a determination are set
forth in FIL-69-2009 (December 4, 2009). As explained in the FIL, an
insured depository institution can request a local rate
determination by sending a letter to the applicable FDIC regional
office. The institution should specify its market area(s). After
receiving the request, the FDIC will make a determination as to
whether the bank's market area is a high-rate area. If the FDIC
agrees that the bank is operating in a high-rate area, the bank
would need to calculate and retain evidence of the prevailing rates
for specific deposits in its local market area. The question and
answer attachment was revised in November 1, 2011.
---------------------------------------------------------------------------
III. Need for Further Rulemaking
The current interest rate cap regulations became effective in 2010
and were adopted to modify the previous national rate cap (based on
U.S. Treasury securities) that had become overly restrictive. Chart 1
below reflects the current national rate cap and the average of the top
ten rates paid for a 12-month CD between 2010 and the present.\25\
Chart 1 illustrates that between 2010 and approximately the second
quarter of 2015, rates on deposits were quite low, even for the top
rate payers. The current regulation's methodology for calculating the
national rate, to which 75 basis points is added to arrive at the
national rate cap, resulted in a national rate cap that allowed less
than well capitalized institutions to easily compete with even the
highest rates paid on the 12-month CD.
---------------------------------------------------------------------------
\25\ The average of the top ten rates paid for 12 month CDs is
meant to illustrate a competitive offering rate for wholesale
insured deposits and show the general direction of the movement of
the market for deposit rates.
---------------------------------------------------------------------------
[[Page 46473]]
[GRAPHIC] [TIFF OMITTED] TP04SE19.001
Since July 2015, however, market conditions have changed so the
current national rate methodology results in a national rate for the
12-month CD that, when 75 basis points are added, produces a national
rate cap that has remained relatively unchanged and could restrict less
than well capitalized institutions from competing for market-rate
funding. Market conditions have caused similar changes in the rates of
other deposit products compared to the applicable rate cap, although
the timing of when such changes occurred varied from product to
product. Interest rates have been relatively low since the financial
crisis that began in 2007. Towards the end of 2015, however, some banks
began to increase rates paid on deposits as the Federal Reserve
increased its federal funds rate targets. During this time, and up to
the present day, the largest banks have been, on average, slower to
raise interest rates on deposits (as published). This has held down the
simple average of rates offered across all branches. Additionally,
institutions, including the largest banks, have recently been offering
more deposit products with special features, such as rewards checking,
higher rates on odd-term maturities, negotiated rates, and cash
bonuses, that are not included in the calculation of the posted
national rate.
Because of these developments, the majority of the institutions
subject to the interest rate caps have been granted approval to use the
local rate cap for deposits obtained locally. The national rate cap,
however, remains applicable to deposits that these institutions
obtained from outside their respective normal market area, including
through the internet.
Setting the national rate cap at a too low of a level could
prohibit less than well capitalized banks from competing for deposits
and create an unintentional liquidity strain on those banks competing
in national markets. For example, a national rate cap that is too low
could destabilize a less than well capitalized bank just as it is
working on improving its financial condition. Preventing such
institutions from being competitive for deposits, when they are most in
need of predictable liquidity, can create severe funding problems.
Additionally, a rate cap that is too low may be inconsistent with the
statutory requirement that a firm is prohibited from offering a rate
that ``significantly exceeds'' or is ``significantly higher'' than the
prevailing rate. This could unnecessarily harm the institution and its
customers, especially when liquidity planning is essential for safety
and soundness. At the same time, however, the statute imposes interest
rate restrictions on weak institutions. It has been the FDIC's
experience that while some banks recover from problems, others use
high-rate funding and other available funds, not to recover, but to
delay insolvency--a strategy that could lead to increased losses for
the deposit insurance fund.\26\
---------------------------------------------------------------------------
\26\ See e.g., OIG Failed Bank Review for Proficio Bank,
February 2018, FBR-18-001, (https://www.fdicoig.gov/sites/default/files/publications/FBR-18-001.pdf).
---------------------------------------------------------------------------
Consequently, the FDIC is proposing to modify its regulations to
provide a more balanced, reflective, and dynamic national and local
rate cap that will ensure that less than well capitalized institutions
have the flexibility to access market-rate funding, yet prevent them
[[Page 46474]]
from offering a rate that significantly exceeds the prevailing rate for
a particular product, in accordance with Section 29.
Issues Raised by Commenters
In response to the ANPR on brokered deposits and interest rate
restrictions, the FDIC received over 130 comments from individuals,
banking organizations, non-profits, as well as industry and trade
groups, representing banks, insurance companies, and the broader
financial services industry. Of the total comments, 59 related to the
FDIC's rules on the interest rate restrictions.
The majority of these commenters expressed concerns about the
current national rate calculation and raised the same issues
highlighted by the FDIC as part of the ANPR. Most commenters were of
the view that the current national rate cap is too low. One reason
cited by commenters was that the largest banks with the most branches
have a disproportional effect on the national rate. These institutions
have been slow to increase published rates even as interest rates
offered by community banks and online-focused banks have begun to rise
significantly in comparison. Many of these commenters suggested that
this skewing effect is compounded by minimizing the significance of
online-focused banks, which have few or no branches but tend to pay the
highest rates. Commenters also noted that the national rate is low
because published rates (1) tend to be lower than the actual interest
paid on deposits after negotiation and (2) may not accurately reflect
certain promotional or cash bonus products.
Some commenters stated that because of technological advances
(e.g., internet and smartphones) any depositor can shop nationwide for
the best yield, so all institutions compete in the national market. As
a result of this new way to access deposits, along with the variety of
available deposit products, commenters suggested that no single formula
or set of formulas would be able to accurately define the prevailing
rate in an institution's normal market area, although commenters
expressed a desire for a more dynamic approach. One commenter stated
that there will always be constant evolution in the types of interest
paid to depositors, and new entrants will continue to develop different
products.
A number of commenters stated that the interest rate restrictions
are penalizing less than well capitalized institutions and increase the
likelihood of a liquidity failure because such institutions would be at
a competitive disadvantage in raising deposit funding at the current
rate caps.
Several commenters also raised concerns over examiners' use of the
national rate cap as a proxy for ``high risk'' deposits for well
capitalized banks. The FDIC has responded to these concerns by revising
its Risk Management Supervision Manual of Examination Policies and
clarifying to examiners that rate caps apply only to institutions that
are less than well capitalized.\27\
---------------------------------------------------------------------------
\27\ https://www.fdic.gov/regulations/safety/manual/section6-1.pdf. For safe and sound operation, it is important for the
management of any institution to assess and monitor the
characteristics of its entire funding base, to understanding of the
stability of all funding sources, and to identify potential funding
shortfalls and sources that in a stress event may become unavailable
or cost prohibitive. The FDIC is evaluating whether any further
changes to the Manual are warranted.
---------------------------------------------------------------------------
One commenter believed that it would be inconsistent with
Congressional intent for the FDIC to take action to modify interest
rate restrictions in a manner that would allow less than well
capitalized banks to accept high-rate deposits.
Recommendations Provided by Commenters
Many commenters provided recommendations for changing the national
rate and national rate cap methodology. Commenters suggested the
following changes:
The national rate calculation should include all
comparable deposit rates, including, for example, promotional CD
products (e.g., ``off-tenor'' terms), specials offered (e.g., cash
incentives), rewards checking products, and products that are available
only in the online marketplace.
The national rate calculation should include one entry per
bank charter rather than the current approach that calculates the
simple average of published rates by all branches.
The national rate should be based on fixed income
instruments such as U.S. Treasury yields or the Federal Home Loan Bank
advance rate. Some of these commenters suggested that the current
national rate cap should allow institutions to choose between the
higher of the national rate cap set in the 1992 and the 2009
rulemaking. This would allow less than well capitalized institutions to
offer rates at the higher of (1) 120, or 130 percent for wholesale
deposits, of the U.S. Treasury yields plus 75 basis points and (2) the
current national rate cap (simple average of all branches plus 75 basis
points).
The national rate calculation should be based on an
average of the top listing service rates.
Community banks should be able to use a more tailored
local market rate that includes online rates, specials, and promotional
rates.
Additionally, other commenters asserted that the interest rate
restrictions should be eliminated and replaced with growth restrictions
on banks that are undercapitalized or have serious asset quality
issues.
In response to the issues raised by commenters, the FDIC seeks
public comments on a proposal to amend the interest rate caps. The
purpose of the proposed rule would be to ensure that the rate caps are
more dynamic in that they remain reflective of the prevailing rates
offered through all stages of the economic and interest rate cycles.
Additionally, the proposed rule is intended to allow less than well
capitalized insured depository institutions subject to the interest
rate caps to reasonably compete for funds within markets, and yet, in
accordance with Section 29, constrain them from offering a rate that
significantly exceeds the prevailing rate for a particular product.
IV. Proposed Rule
The proposal would amend the national rate and both the national
rate cap and the local rate cap. The proposal would also provide a new
simplified process for institutions that seek to offer a local market
rate that exceeds the national rate cap.
National Rate
The proposed national rate would be the weighted average of rates
paid by all insured depository institutions on a given deposit product,
for which data are available, where the weights are the institution's
market share of domestic deposits. Through this proposal, the FDIC
would continue to interpret the ``prevailing rates of interest . . . in
an institution's normal market area'' to be the national rate, as
defined by regulation. The key difference between the proposed national
rate and the current national rate is that the calculation of the
proposed national rate would be a weighted average based on an
institution's share of total domestic deposits, while the current
methodology is based on an institution's number of branches.
In determining the proposed national rate, the FDIC would calculate
an average rate per institution for each specific deposit product that
the institution offers, and for which data is available, including CDs
of various tenors, as well as savings accounts, checking accounts and
MMDAs. The national rate for a specific deposit
[[Page 46475]]
product would then be calculated by multiplying each bank's rate by its
amount of domestic deposits, summing these values, and dividing by the
total amount of domestic deposits held by such institutions. Table 1
below presents data for a hypothetical deposit product. The national
rate for this hypothetical deposit product would be 1.56 percent, the
average of the rates offered by these banks, weighted by domestic
deposits. Chart 2 compares the national rate under the current
methodology weighted by branches to the proposed methodology weighted
by deposits.
Calculation of the average using the weighted methodology:
[GRAPHIC] [TIFF OMITTED] TP04SE19.002
Table 1
----------------------------------------------------------------------------------------------------------------
Share of
Bank Total industry Rate (%)
deposits deposits (%)
----------------------------------------------------------------------------------------------------------------
Bank A.......................................................... 4,000 2.00 2.30
Bank B.......................................................... 3,000 1.50 2.25
Bank C.......................................................... 21,000 10.50 2.15
Bank D.......................................................... 4,000 2.00 2.05
Bank E.......................................................... 23,000 11.50 2.00
Bank F.......................................................... 12,000 6.00 1.99
Bank G.......................................................... 6,000 3.00 1.75
Bank H.......................................................... 76,000 38.00 1.45
Bank I.......................................................... 32,000 16.00 1.40
Bank J.......................................................... 3,000 1.50 1.00
Bank K.......................................................... 9,000 4.50 0.45
Bank L.......................................................... 2,000 1.00 0.25
Bank M.......................................................... 5,000 2.50 0.15
-----------------------------------------------
Total....................................................... 200,000 100.00 N/A
----------------------------------------------------------------------------------------------------------------
[[Page 46476]]
[GRAPHIC] [TIFF OMITTED] TP04SE19.003
National Rate Cap
The proposal would interpret that a rate of interest
``significantly exceeds'' the prevailing rate, or is ``significantly
higher'' than the prevailing rate, if the rate of interest exceeds the
national rate cap. The national rate cap would be set to the higher of
(1) the rate offered at the 95th percentile of rates weighted by
domestic deposit share or (2) the proposed national rate plus 75 basis
points. The FDIC would compute the permissible national rate cap
applicable for different deposit products and maturities on a monthly
basis, and would plan to publish such information on the FDIC's website
on a monthly basis.\28\
---------------------------------------------------------------------------
\28\ FDIC would retain discretion to publish more or less
frequently, if needed.
---------------------------------------------------------------------------
Rates offered at the 95th Percentile. Through this proposal, one
method for the national rate cap would be the rate offered at the 95th
percentile of rates weighted by domestic deposit share. By definition,
the rates that exceed this component of the national cap would be part
of the top 5 percent of rates offered, weighted by domestic deposit
share. In other words, setting the threshold at the 95th percentile
would allow institutions subject to the interest rate restrictions to
compete with all but the top five percent of offered rates, weighted by
domestic deposit share. This standard is intended to set a reasonable
proxy for rates that ``significantly exceed'' the prevailing rate in
that the rate would allow less than well capitalized institutions to
access market-rate funding. At the same time, it would constrain them
from being at the very top of the market.
To determine the rate being offered at the 95th percentile, the
FDIC would calculate an average rate per institution for each specific
deposit product that the institution offers, and for which data is
available, including CDs of various tenors, as well as savings,
checking and MMDAs. These rates would be sorted by rate offered on the
given deposit product from highest to lowest. An institution's
percentile would be determined by taking the sums of the amounts of
domestic deposits held by the institution and by all the institutions
offering a lower rate, dividing that value by the total domestic
deposits held by all institutions for which data is available. The rate
offered by the bank whose percentile was the first at or above the 95th
percentile would be the rate at the 95th percentile.
In Table 2 below, Bank C is the first institution offering a rate
at or above the 95th percentile. Therefore, Bank C's rate of 2.15
percent would be the national rate cap for this hypothetical deposit
product under the 95th percentile method.
[GRAPHIC] [TIFF OMITTED] TP04SE19.004
[[Page 46477]]
Table 2
----------------------------------------------------------------------------------------------------------------
Share of
Bank Total industry Cummulative Percentile Rate (%)
deposits deposits (%) deposits (%)
----------------------------------------------------------------------------------------------------------------
Bank A.......................... 4,000 2.00 200,000 100.0 2.30
Bank B.......................... 3,000 1.5 196,000 98.0 2.25
Bank C.......................... 21,000 10.5 193,000 96.5 2.15
Bank D.......................... 4,000 2.0 172,000 86.0 2.05
Bank E.......................... 23,000 11.5 168,000 84.0 2.00
Bank F.......................... 12,000 6.0 145,000 72.5 1.99
Bank G.......................... 6,000 3.0 133,000 66.5 1.75
Bank H.......................... 76,000 38.0 127,000 63.5 1.45
Bank I.......................... 32,000 16.0 51,000 25.5 1.40
Bank J.......................... 3,000 1.5 19,000 9.5 1.00
Bank K.......................... 9,000 4.5 16,000 8.0 0.45
Bank L.......................... 2,000 1.0 7,000 3.5 0.25
Bank M.......................... 5,000 2.5 5,000 2.5 0.15
----------------------------------------------------------------------------------------------------------------
National Rate Plus 75 Basis Points. Through this proposal, the
second method for the national rate cap methodology would be the
proposed national rate plus 75 basis points. This method for the
national rate cap would build upon the long-standing application that
an amount that is 75 basis points above the average rates offered on a
particular product is an appropriate proxy for a rate that
``significantly exceeds'' or is ``significantly higher'' than the
prevailing rate. The 75 basis point add-on to this national rate cap
would also provide needed flexibility during low-rate environments, or
when the rate paid at the 95th percentile is low due to a convergence
of rates being offered by banks with relatively large deposit shares
for particular products. In such cases, the 95th percentile may not
represent a rate that ``significantly exceeds'' or is ``significantly
higher'' than the prevailing rate for particular deposit products.
Proposed Methodology
Weighting the national rate and the national rate cap by domestic
deposits is more representative of the amount of deposits placed at
offered rates than weighting by branches (which is a feature of the
current method), particularly for internet-only banks that have a large
share of deposits but few branches and tend to pay higher rates.
Moreover, the use of percentiles decreases the effects of institutions
that may be viewed as pushing down the average by offering very low
published rates, but at the same time may offer special features, such
as cash bonuses or negotiated rates, that result in an effective higher
interest expense paid to depositors than is reflected in the published
rates.
Additionally, utilizing a percentile methodology would improve the
current national rate cap by providing a more dynamic calculation. This
is because the distribution of rates offered often reflects a large
mass of rates at the low end of the market and fewer rates offered at
the high end of the market. As many commenters noted, this distribution
has caused the current national rate caps (calculated using a simple
average) to remain low even as more institutions begin to pay higher
rates. Because one component of the proposed national rate cap would be
based on rates paid at the 95th percentile, the effect of having a
large mass of rates at the low end of the market would not be as
pronounced.
There are, however, potential data limitations with this proposed
methodology. The data gathered from third party sources is based upon
information provided directly by institutions or made available via
public sources. As such, some rates being offered for certain products
are left unreported or unpublished and therefore may not be captured as
part of the data set used to determine the national rate caps. If a
rate offered by an institution that has a sizeable market share of
total domestic deposits is not included in the data sources, then the
national rate cap may not be truly reflective of the market. In
addition, if the data is not consistently reported or captured, the
national rate cap could be subject to fluctuations from month to month
due to the methodology's use of weighting. To ensure that all reported
rates are incorporated in the national rate cap, the FDIC would review
the data it receives to ensure that all rate information that has been
provided is incorporated \29\ before making the national rate cap
available on the FDIC's website.
---------------------------------------------------------------------------
\29\ To the extent possible, staff plans to review the data for
omissions that may have a significant impact on the national rate
and national rate cap.
---------------------------------------------------------------------------
There may also be other factors (e.g., geopolitical changes,
changes to the federal funds rate) that could have an impact on the
rates being offered and may cause fluctuations in the national rate
cap, given the proposed weighting by deposit share. Moreover, it is
possible that one institution, or a few institutions, with a large
deposit share could affect the national rate cap by withdrawing a
product from the market or by introducing a product into the market.
While such fluctuations, caused by factors other than data limitations,
would be reflective of changes in the market, these changes could cause
downward volatility in the national rate cap. In order to address the
effect of this potential downward volatility, the FDIC proposes that,
for institutions that are subject to the interest rate restrictions,
any subsequent published national rate cap, that is lower than the
previously published national rate cap, take effect 3 days after
publication. The previously posted national rate cap would remain in
effect during this 3-day period. Furthermore, in the event of a
substantial unexpected decrease in the national rate cap, the FDIC
would have the discretion to delay the date on which that national rate
cap takes effect. Until the subsequent national rate cap takes effect,
the previously published national rate cap would remain in effect.
Table 3 below compares the current and proposed national rate cap
based upon the various deposit maturities using data from May 20,
2019,\30\ and provides the applicable rate cap that is based upon the
higher of the two proposed national rate caps.
---------------------------------------------------------------------------
\30\ Historical data are only available through the end of May
2019.
[[Page 46478]]
Table 3--Comparison of the Current National Rate Cap and the Proposed
National Rate Cap for Various Deposit Products (as of May 20, 2019)
------------------------------------------------------------------------
Current national Proposed national
Deposit products rate cap rate cap
------------------------------------------------------------------------
Interest Checking................. 0.81 0.80*
Savings........................... 0.84 1.05
MMDA.............................. 0.93 1.20
1 month CD........................ 0.87 0.85*
3 month CD........................ 0.97 0.94*
6 month CD........................ 1.16 1.21
12 month CD....................... 1.40 2.70
24 month CD....................... 1.59 2.65
36 month CD....................... 1.72 2.75
48 month CD....................... 1.82 2.80
60 month CD....................... 1.98 3.00
------------------------------------------------------------------------
* For these products, the Proposed Rate Cap as of May 20, 2019, would be
based on the weighted mean plus 75 basis points methodology as of
March 2019.
Source: FDIC and RateWatch.
As part of this proposal, the FDIC would continue to publish the
national rate cap for the on-tenor maturities noted above in Table
3.\31\ If an institution seeks to offer a product with an off-tenor
maturity for which a rate is not published by the FDIC, then the
institution would be required to use the rate offered on the next
lowest on-tenor maturity for that product as the applicable national
rate cap. For example, an institution seeking to offer a 26-month CD
product must use the rate offered for the 24-month CD product as the
institution's national rate cap.
---------------------------------------------------------------------------
\31\ On-tenor maturities include the following term periods: 1-
month, 3-month, 6-month, 12-month, 24-month, 36-month, 48-month, and
60-month. All other term periods are considered off-tenor maturities
for purposes of the interest rate restrictions.
---------------------------------------------------------------------------
Historical Data. In determining the appropriateness of the proposed
methodology for the national rate and national rate cap, the FDIC
reviewed and considered the proposed national rate cap's progression
over time relative to the current and previous rate caps and top rates
from a listing service. Appendix 1 of this document provides charts
with historical data for the various maturities. The charts illustrate
that the proposed national rate cap set to the rate offered at the 95th
percentile would be more reactive to and reflective of the fluctuations
in the interest rate market than the current national rate cap for many
of the maturities, particularly those with tenors of 6 months or more
and MMDAs. To the extent that the rate offered at the 95th percentile
is flat, and does not react to the top payers due to a convergence of
rates among the banks with the largest deposit shares for particular
deposit products (as currently seen with the interest checking product
and the one and three month CDs), then the national rate plus 75 basis
points would provide flexibility for institutions to remain
competitive, while still satisfying the statutory interest rate
restrictions applicable to less than well capitalized institutions.
Local Rate Cap
Since the 2009 rulemaking, competition for deposits among insured
depository institutions continues to grow increasingly digital and
therefore national in scope. Today, a consumer in any market, including
rural markets, can access rates and shop for deposit products by
checking a variety of websites. In light of this evolution, the
proposal would continue to presume that the national rate cap applies
to rates offered on all deposits by less than well capitalized
institutions. However, because the FDIC's experience suggests some
institutions still do compete for particular products within their
local market areas, the proposal would continue to provide a local rate
cap process.
Specifically, the proposal would allow less than well capitalized
institutions to provide evidence that any bank and credit union in its
local market offers a rate on particular deposit product in excess of
the national rate cap. If sufficient evidence is provided, then the
less than well capitalized institution would be allowed to offer 90
percent of the competing institution's rate on the particular product.
This would replace the current methodology that requires the local rate
cap to be the average of the rates offered by all competing
institutions, which can include credit unions, for a particular product
plus 75 basis points.
As part of this proposal, the FDIC would define an institution's
market area as any readily defined geographical area, which may include
the State, county or metropolitan statistical area, in which the
insured depository institution solicits depositors by offering rates on
a particular deposit product. Less than well capitalized institutions
that solicit deposit products outside of their local market area, such
as online listing services, would not be allowed to offer rates on
those nationally-sourced deposit products in excess of the national
rate cap, and therefore would not be eligible for a local rate cap
determination for those products.
An institution's local market rate cap would be based upon the rate
offered on a particular deposit product type and maturity period by an
insured depository institution or credit union that is accepting
deposits at a physical location within the institution's local market
area. If a less than well capitalized institution seeks to offer a
product with an off-tenor maturity that is not offered by competing
institutions within its local market area, then the institution would
use the rate offered on the next lowest on-tenor maturity for that
product when determining its local market rate cap. For example, a less
than well capitalized institution seeking to offer a 26-month CD
product would use the rate offered for a competitor's 26-month product.
In this way, an institution would be able to take into consideration
rates offered on off-tenor
[[Page 46479]]
maturity products in calculating a local rate cap. If a 26-month
product was not being offered by a competitor, then the institution
would use the rate offered on a 24-month CD product to calculate the
institution's local market rate cap.
A less than well capitalized institution would not be permitted to
calculate its local rate cap based on rates that are tied to a deposit
balance. For example, if a competing institution offers different
interest rates for different deposit balances for the same deposit
maturity, the institution may not pick the highest rate from the
competing institution's rates. The less than well capitalized
institution should average the competing institution's interest rates
for each size deposit within each maturity period.\32\ In addition, a
less than well capitalized institution would be permitted to use
published rates only, rather than adjusting a competing institution's
rates to reflect special features, such as cash incentives being
offered by that competing institution, when calculating its local
market rate cap.
---------------------------------------------------------------------------
\32\ For example, a competing institution may offer, on the same
deposit product, 1 percent interest for a minimum deposit of $10,000
and 2 percent interest for a minimum deposit of $100,000. In such a
case, for purposes of the local rate cap, the competing
institution's interest rate would be 1.5 percent.
---------------------------------------------------------------------------
Similarly, for time deposits, the FDIC would view lack of limits on
withdrawals as a special feature. For example, if an institution is
reviewing a competitor's rates on a CD with a five year stated maturity
but only a one-month limit on withdrawals (or considering offering such
a product itself), the FDIC would look to the substance of the product,
which is more akin to a one-month CD, when considering a less than well
capitalized institution's request for a local rate determination.
The proposal would also eliminate the current two-step process
where less than well capitalized institutions request a high rate
determination from the FDIC and, if approved, calculate the prevailing
rate within local markets. Instead, a less than well capitalized
institution would need to notify its appropriate FDIC regional office
that it intends to offer a rate that is above the national rate cap and
provide evidence that it is competing against an institution or credit
union that is offering a rate in its local market area in excess of the
national rate cap. As described above, the institution would then be
allowed to offer 90 percent of the rate offered by a competitor in the
institution's local market area. The institution would be expected to
calculate the local rate cap monthly, maintain records of the rate
calculations for at least two examination cycles and, upon the FDIC's
request, provide the documentation to the appropriate FDIC regional
office and to examination staff during any subsequent examinations.
The proposal to amend the local rate cap is intended to streamline
the current local rate cap process and provide additional flexibility
for less than well capitalized institutions to compete with local
competition offering rates in excess of the national rate cap. This
proposal would also address a popular promotional method of attracting
new maturity deposits by offering higher rates on off-tenor products.
Treatment of Non-Maturity Deposits for Purposes of the Interest Rate
Restrictions
For purposes of the interest rate restrictions, the FDIC has from
time to time looked at the question of when non-maturity deposits in an
existing account are considered ``accepted'' or ``solicited.'' The
FDIC, through this proposal, is considering an interpretation under
which non-maturity deposits are viewed as ``accepted'' and
``solicited'' for purposes of the interest rate restrictions at the
time any new non-maturity deposits are placed at an institution.
Under this proposed interpretation, balances in a money market
demand account or other savings account, as well as transaction
accounts, at the time an institution falls below well capitalized would
not be subject to the interest rate restrictions. However, if funds
were deposited to such an account after the institution became less
than well capitalized, the entire balance of the account would be
subject to the interest rate restrictions. If, however, the same
customer deposited funds into a new account and the balance in that
account was subject to the interest rate restrictions, the balance in
the initial account would continue to not be subject to the interest
rate restrictions so long as no additional funds were accepted.
Interest rate restrictions also generally apply to any new non-maturity
deposit accounts opened after the institution falls to below well
capitalized.
The term ``accept'' is also used in PCA-triggered restrictions
related to brokered deposits and employee benefit plan deposits.\33\
The FDIC plans to address in a future rulemaking when deposits are
``accepted'' for purposes of these PCA-related restrictions, both for
non-maturity deposits, such as transaction accounts and MMDAs, as well
as for certificates of deposits and other time deposits.
---------------------------------------------------------------------------
\33\ See 12 U.S.C. 1821(a)(1)(D) and 1831f(a).
---------------------------------------------------------------------------
V. Alternatives
Below are alternatives that were considered, and on which the FDIC
is seeking comment, as part of this proposed rulemaking.
Higher of Two Previous Rate Caps
As an alternative to replacing the 75 basis points as the threshold
for ``significantly exceeds'' and the current simple average
methodology for the national rate, the FDIC considered retaining the
current threshold but modifying it so that, for a particular deposit
product, the national rate cap would be 75 basis points added to the
higher of: (1) The current simple average calculation; or (2) the
methodology used by the FDIC between 1992 and 2009, i.e., 120 percent
or, 130 percent for wholesale deposits, of the applicable Treasury
security rate, plus 75 basis points.
Several commenters suggested that the FDIC allow institutions to
pay the higher of the previous national rate cap, which tracks the
yields on comparable Treasury securities plus 75 basis points, or the
current national rate cap. Chart 3 below shows the national rate cap
based on Treasury securities from 1996 through the present. The chart
also shows the current rate cap from 2009 forward, as well as the
average of top rates from a listing service from 1996 to the present.
BILLING CODE 6714-01-P
[[Page 46480]]
[GRAPHIC] [TIFF OMITTED] TP04SE19.005
BILLING CODE 6714-01-C
Chart 3 illustrates the difficulties in determining a prevailing
market rate that accurately reflects the true market value of different
deposit products in changing economic environments. The method used to
calculate the previous national rate cap (using U.S. Treasury
securities) worked well for many years because rates on Treasury
obligations tracked closely the rates on deposits. In 2008, however,
the rates on Treasury obligations dropped dramatically because of a
flight to quality during the financial crisis. Consequently, the yields
on U.S. Treasuries fell faster than deposit rates and no longer tracked
the rates available on deposits, thereby prompting the FDIC to change
the national rate to the current simple average approach. The current
approach provided institutions much needed relief during the post-
crisis years up until 2015 when, as described above, rates started
increasing and the national rate cap lagged behind. At the same time,
however, because the current methodology was so permissive, it
effectively made the interest rate restrictions non-constraining for
less than well capitalized institutions for several years.
Today, with the benefit of having data to review the ability of
previous and current national rate calculations to capture deposit
market conditions, it is apparent that neither measure works in all
interest rate environments. Given that the method used to calculate the
national rate cap tied to U.S. Treasury securities works well under
certain economic conditions (high-rate or rising-rate environments),
and the current method of calculating the national rate cap works well
under other economic conditions (falling-rate environment), the FDIC
considered setting the national rate cap applicable to less than well
capitalized institutions at the higher of the previous and current rate
caps. The FDIC also considered whether the U.S. Treasury securities
index would warrant a multiplier plus 75 basis points, as previously
provided.
The FDIC believes that this alternative would be simple to
administer and provide immediate and continuous relief to institutions
subject to the interest rate restrictions. Using a fixed income product
such as U.S. Treasury securities would also mitigate potential data
limitations in determining a national rate based solely upon rates
reported to third-party sources. However, U.S. Treasury securities are
not deposit rates and, as indicated by the chart above, do not always
track deposit rates. Also, U.S. Treasury securities do not have the
necessary range of maturities that are prevalent with deposit products,
particularly with the recent popularity of non-maturity deposits.\34\
Moreover, there are certain rate environments in which neither
alternative might be expected to yield a rate that ``significantly
exceeds'' or is ``significantly higher'' than the prevailing rate, such
as a high rate environment in which Treasury yields dropped
precipitously while deposit rates remained constant.
---------------------------------------------------------------------------
\34\ One option considered is to use the overnight Federal Funds
rate in place of U.S. Treasury securities for the non-maturity
deposit products.
---------------------------------------------------------------------------
Average of the Top-Payers
Some commenters suggested that the FDIC use an average of the top
rates paid as the national rate cap. As an example, the FDIC could set
the national rate cap based upon the average of the top-25 rates
offered (by product type). Under this approach, the FDIC would
interpret that a less than well capitalized institution ``significantly
exceeds the prevailing rate in its normal market area'' if it offers a
rate that is above the average of the top rates offered in the country.
This approach would be simple to administer and the
[[Page 46481]]
FDIC would be able to provide real-time rate caps because it would no
longer need to maintain and review the extensive data it receives from
third party data providers to calculate averages.
At the same time, setting the ``prevailing rate'' based upon rates
offered at the top of the market might be viewed as inconsistent with
the FDIC's historical interpretation that the ``prevailing rates''
offered should include rates offered by all participants in the market.
The subset of banks paying the highest rate may have a small market
share and have little to no influence over competitive rates paid in
the market. Further, this same small subset of banks could be
significant outliers from the rates offered by the market.
Incorporate Specials and Promotions Into the Current National Rate
Calculation
Several commenters suggested that the FDIC change its methodology
in calculating the current national rate and include additional inputs
for the published rates, such as special negotiated rates or other
monetary bonus offers. Calculating the national rate with these special
features is problematic. Foremost, information regarding special
features is not consistently provided by institutions to private
publications. Additionally, the data provided by institutions on Call
Reports is limited to a very broad category of interest expense on non-
maturity deposits and maturity deposits on only a quarterly basis.
Institutions do not provide details on the interest expense related to
the variety of deposit products, particularly for maturity deposits.
One Vote per Institution
Commenters also recommended that published rates be limited to the
highest rate offered by each depository institution. According to
commenters, this would prevent a skewing effect on the national rate by
the largest institutions with the most branches. In considering this
alternative, the FDIC analyzed the impact of this change. The chart
below compares, for the 12-month CD, the current national rate cap
(using all branches) and the national rate rap using the highest rate
offered by each IDI (in other words, each institution gets ``one
vote''). The differences in rates range from 15 to 52 basis points,
with a range of 25 basis points between 2012 through 2017, as
illustrated in Chart 4 below.
[GRAPHIC] [TIFF OMITTED] TP04SE19.006
In the FDIC's view, the one-bank, one-vote approach, almost by
definition would result in a national rate that may not be reflective
of market rates currently being offered. Moreover, the FDIC believes
that institutions with multiple branches and more deposits have a
greater impact on competition and the market rates. Therefore,
including branches or weighting by market share is a more reflective
way to calculate the national rate.
[[Page 46482]]
Federal Home Loan Bank Borrowing Rate
Many commenters suggested that the FDIC amend the current national
rate calculation and use the Federal Home Loan Bank (FLHB) borrowing
rate for each maturity. The FDIC chose not to propose the FHLB
borrowing rate for several reasons. The FHLB borrowing rate is not
based upon rates offered by institutions,\35\ but is instead based upon
the cost of funds for FHLB member institutions and requires that FHLBs
obtain and maintain collateral from their members to secure the
advance. Collateral requirements and borrowing interest rates may also
vary based on an insured depository institution's financial condition.
Moreover, FHLB advances, unlike deposit products, are not insured and
not guaranteed by the U.S. government. In addition, there are 11
different FHLB districts, all that establish their own rates that may
vary between districts. As such, the FHLB borrowing rate would be an
imprecise indicator of rates offered on deposits by insured depository
institutions.
---------------------------------------------------------------------------
\35\ Section 29 of the FDI Act restricts less than well
capitalized institutions from offering a rate of interest that is
significantly higher than the prevailing rates of interest on
deposits offered by other insured depository institutions. 12 U.S.C.
1831f(g)(3).
\36\ FDIC--12 CFR 324.403(b)(1)(v); Board of Governors of the
Federal Reserve System--12 CFR 208.43(b)(1)(v); Office of the
Comptroller of the Currency--12 CFR 6.4(c)(1)(v).
\37\ The 22 institutions do not include any quantitatively well
capitalized institutions that may have been administratively
classified as less than well capitalized.
---------------------------------------------------------------------------
VI. Expected Effects
The interest rate restrictions apply to an insured depository
institution that is less than well capitalized under the Prompt
Corrective Action (PCA) capital regime. An institution may be less than
well capitalized either because: (1) Its capital ratios fall below
those set by the federal banking agencies for an institution to be
deemed well capitalized; or (2) it otherwise meets the capital
requirements for the well capitalized category, but is subject to a
written agreement, order, capital directive, or prompt corrective
action directive issued by its primary regulator that requires the
institution to meet and maintain a specific capital level for any
capital measure.\36\
Currently, very few insured depository institutions are less than
well capitalized. As of March 30, 2019, there were 5,362 FDIC-insured
institutions. Of these, 22 had capital ratios that put them in a PCA
category lower than well capitalized and hence, potentially, affected
by the proposed rule.\37\ The FDIC reviewed deposit interest rate
information for a sample of 17 of these institutions for which data
were available. Twelve of the 17 paid deposit interest rates that were
less than both the current and the proposed national rate caps. Five of
these 17 institutions paid interest rates on a number of deposit
products that exceeded the current national rate cap but were less than
the proposed national rate cap. A few deposit products at three of the
banks paid rates exceeding both the current and proposed national rate
caps.
Deposit interest rates paid by less than well capitalized banks
that exceed the current national rate cap reflect situations where
banks avail themselves of the local rate cap process. By generally
increasing the level of the national interest rate caps in the current
interest rate environment, the proposal can be expected to reduce the
need for less than well capitalized banks to avail themselves of the
local rate cap process. This is expected to simplify liquidity planning
for these institutions.
In some future less favorable economic and banking environment,
where the number of less than well capitalized banks increases
substantially, the effects of the rule would become more meaningful.
Conceptually, under the proposed rule, the national rate cap would
appear more responsive to, and reflective of, changes in the interest
rate environment than is the current national rate cap. This would
likely reduce the potential for severe liquidity problems or liquidity
failures at viable banks to arise solely as a result of the operation
of the cap. The FDIC believes this aspect of the rule is important,
although difficult to quantify given uncertainties about both the
future interest rate environment and the future condition of banks.
Having a national interest rate cap that is more reflective of the
interest rate environment may also result in lower losses to the DIF.
In the last financial crisis, the FDIC encouraged mergers and problem
asset reduction for problems banks while they were opened as well as
innovations in franchise marketing for failed bank assets.\38\
Inappropriately restricting banks from competing for deposits could
result in expedited failures and less time for less than well
capitalized institutions to solve their problems either through asset
sales or mergers.
---------------------------------------------------------------------------
\38\ Federal Deposit Insurance Corp., Crisis and Response: An
FDIC History, 2008-2013 (2017), pp. 134, 175 (https://www.fdic.gov/bank/historical/crisis/crisis-complete.pdf).
---------------------------------------------------------------------------
On the other hand, by generally increasing the rate caps, the
proposed rule may increase the possibility, as compared to the current
national rate cap, that a less than well capitalized institution could
continue to fund imprudent operations by soliciting insured deposits at
high interest rates. Since the proposal sets the national rate cap at
the greater of the deposit weighted average rate plus 75 basis points,
or the 95th percentile of deposit weighted interest rates, two types of
interest rate environments should be distinguished.
When interest rates are low and the rates paid by institutions are
distributed over a relatively narrow band, the ``average plus 75 basis
points'' prong of the rule would likely determine the cap. The
operation of the cap in these low interest rate environments would be
similar to the current cap, which defines ``significantly exceeds'' by
reference to a 75 basis point difference. In higher or rising interest
rate environments, in which the deposit interest rates paid by
institutions are widely dispersed, the ``95th percentile'' prong of the
rule would be more likely to determine the cap. In these environments,
the proposal would in effect limit the interest rate paid by a less
than well capitalized institution to less than the top five percent of
deposit weighted rates on comparable deposit products. This ensures
that the national rate cap will remain within a defined percentile band
of the distribution of prevailing interest rates.
The FDIC is interested in commenters views on the impact of the
proposed rule in less favorable economic environments, as regard to the
objective of avoiding liquidity problems and liquidity failures of
viable institutions, and the objective of ensuring that less than well
capitalized institutions do not solicit deposits at interest rates
significantly exceeding prevailing interest rates on comparable deposit
products.
Appendix 1
Historical charts illustrating the proposed national rate cap, the
top rates offered, and the previous and current national rate caps,
where applicable, since 2005.
[[Page 46483]]
[GRAPHIC] [TIFF OMITTED] TP04SE19.007
[[Page 46484]]
[GRAPHIC] [TIFF OMITTED] TP04SE19.008
[[Page 46485]]
[GRAPHIC] [TIFF OMITTED] TP04SE19.009
[[Page 46486]]
[GRAPHIC] [TIFF OMITTED] TP04SE19.010
[[Page 46487]]
[GRAPHIC] [TIFF OMITTED] TP04SE19.011
[[Page 46488]]
[GRAPHIC] [TIFF OMITTED] TP04SE19.012
[[Page 46489]]
[GRAPHIC] [TIFF OMITTED] TP04SE19.013
[[Page 46490]]
[GRAPHIC] [TIFF OMITTED] TP04SE19.014
[[Page 46491]]
[GRAPHIC] [TIFF OMITTED] TP04SE19.015
[[Page 46492]]
[GRAPHIC] [TIFF OMITTED] TP04SE19.016
I. Request for Comment
The FDIC invites comment from all members of the public regarding
all aspects of the proposal, including the alternatives considered.
This request for comment is limited to this proposal. The FDIC will
carefully consider all comments that relate to the proposal. In
particular, the FDIC invite comment on the following questions:
Question 1. Does the proposed calculation of the rate caps enable
less than well capitalized institutions to compete for deposits while
satisfying section 29? If not, please explain why.
Question 2. The FDIC proposes to update the national rate cap
information every month, with discretion to update the rate cap more or
less frequently. Currently, the FDIC updates this information on a
weekly basis. Should national rate calculations be provided more or
less frequently than every month, as proposed?
Question 3. U.S. Treasury securities do not have maturities that
are comparable to non-maturity deposit products (e.g., money market or
interest checking). If the FDIC were to use U.S. Treasury securities in
its calculation for the national rate cap, is there a fixed income
product that could be used in place of U.S. Treasury securities as a
proxy for the national rate cap for non-maturity deposit products?
Question 4. The proposed national rate and rate cap are weighted by
deposit share, which gives relatively more influence to internet-only
institutions that have large deposit shares than the current all-branch
approach. Is this weighting system appropriate?
Question 5. To address potential downward volatility in the
national rate cap, the FDIC is proposing that, for institutions that
are subject to the interest rate restrictions, any subsequent published
national rate cap, that is lower than the previously published national
rate cap, take effect 3 days after publication. In certain
circumstances, the FDIC would also have discretion to delay the date on
which a national rate cap takes effect. Is this a reasonable approach
to address the effects of potential downward volatility in the national
rate cap? Are there other ways to address or reduce the effect of
potential volatility on less than well capitalized institutions that
are subject to the interest rate restrictions?
Question 6. Data limitations do not allow consistent means to
include certain special promotions, like cash bonuses, to be included
in the proposed national rate calculations. Is it appropriate to
incorporate specials and promotions? Is there another way to capture
these promotions or deposit products that pay interest based upon an
index or are triggered at some future date (e.g., step-up rates)?
Question 7. The proposed national rate plus 75 basis points is
being proposed as an option for products whose rates converge, as seen
with a few deposit products. While this appears to be a useful
alternative for a few products in the current rate environment, it
might be less appropriate in other rate environments. For example, this
alternative could yield a rate cap that does not ``significantly
exceed'' the prevailing rate in a high rate environment. Are there
better options for setting a proxy to determine what it means to
``significantly exceed''
[[Page 46493]]
a prevailing market rate when rates converge?
Question 8. Should the local rate be exclusively limited to
institutions with a smaller geographical footprint? If so, how should
eligibility be determined?
Question 9. If there is significant movement downwards in the
national rate cap from one publication period to the next, do
institutions need additional time to lower interest rates on particular
products in an effort to be in compliance with the rate caps? If so,
what is an appropriate amount of time?
Question 10. internet institutions are not included in the local
deposit rate calculation. Is this a reasonable approach? If the FDIC
allowed institutions to use internet competitors in their local rate
calculations, how would they choose such competitors and which ones
should be chosen?
Question 11. For purposes of the rate restrictions, the FDIC is
considering an interpretation under which balances in non-maturity
deposit accounts at the time the institution becomes less than well
capitalized are not subject to the interest rate restrictions, but the
balance would be if new funds were deposited into such accounts. Is
this interpretation appropriate? Would there be substantial operational
difficulties for institutions to monitor additions to these existing
accounts in order to determine when they would be subject to the
interest rate restrictions?
VI. Administrative Law Matters
A. Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act
(PRA) of 1995, 44 U.S.C. 3501-3521, the FDIC may not conduct or
sponsor, and the respondent is not required to respond to, an
information collection unless it displays a currently valid Office of
Management and Budget (OMB) control number. This proposed rule does not
create a new or revise an existing information collection. Therefore,
no Paperwork Reduction Act clearance submission to OMB will be made.
B. Solicitation of Comments on Use of Plain Language
Section 722 of the Gramm-Leach Bliley Act,\39\ 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:
---------------------------------------------------------------------------
\39\ Public Law 106-102, 113 Stat. 1338, 1471 (Nov. 12, 1999).
---------------------------------------------------------------------------
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?
C. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) requires that, in connection
with a proposed rule, an agency prepare and make available for public
comment an initial regulatory flexibility analysis that describes the
impact of the proposed rule on small entities.\40\ However, a
regulatory flexibility analysis is not required if the agency certifies
that the proposed rule will not have a significant economic impact on a
substantial number of small entities, and publishes its certification
and a short explanatory statement in the Federal Register together with
the proposed rule. The Small Business Administration (SBA) has defined
``small entities'' to include banking organizations with total assets
of less than or equal to $550 million that are independently owned and
operated or owned by a holding company with less than or equal to $550
million in total assets.\41\
---------------------------------------------------------------------------
\40\ 5 U.S.C. 601 et seq.
\41\ 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.
---------------------------------------------------------------------------
Generally, the FDIC considers a significant effect to be a
quantified effect in excess of 5 percent of total annual salaries and
benefits per institution, or 2.5 percent of total noninterest expenses.
The FDIC believes that effects in excess of these thresholds typically
represent significant effects for FDIC-insured institutions.
The FDIC is proposing revisions to its regulations relating to
interest rate restrictions that apply to less than well capitalized
insured depository institutions, by amending the methodology for
calculating the national rate and national rate cap. The proposal would
also modify the current local rate cap calculation and process.
Specifically, the proposal defines the national rate for a deposit
product as the average rate for that product, where the average is
weighted by domestic deposit share. The proposed national rate cap is
the higher of (1) the rate offered at the 95th percentile of rates
weighted by domestic deposit share or (2) the proposed national rate
plus 75 basis points.
Because the FDIC's experience suggests some institutions compete
for particular products within their local market area, the proposal
would continue to provide a local rate cap process.
Specifically, the proposal would allow less than well capitalized
institutions to provide evidence that any bank or credit union in its
local market offers a rate on particular deposit product in excess of
the national rate cap. If sufficient evidence is provided, then the
less than well capitalized institution would be allowed to offer 90
percent of the competing institution's rate on the particular product.
For the reasons discussed below, the FDIC certifies that the proposed
rule will not have a significant economic effect on a substantial
number of small entities.
Based on March 31, 2019, Call Report data, the FDIC insures 5,362
depository institutions, of which 3,920 are considered small entities
for the purposes of RFA.\42\ As of March 31, 2019, 20 small, FDIC-
insured depository institutions were less than well capitalized.\43\
This represents less than two-fifths of one percent of all FDIC-insured
institutions as of March 31, 2019, and approximately one-half of one
percent of small, FDIC-insured institutions. For 17 small institutions
that were less than well capitalized as of March 31, 2019, and that
reported rates to a private data aggregator, FDIC analysts compared the
national rate caps calculated under the current methodology with the
national rate caps which would have been in effect under the proposal
during the month of March across 11 deposit products.\44\ As
[[Page 46494]]
described in more detail below, the analysis shows that the proposed
national rate caps are less restrictive than the current national rate
caps, and would reduce the likelihood that less than well capitalized
institutions would need to avail themselves of the local rate cap
determination process.
---------------------------------------------------------------------------
\42\ March 31, 2019, FFIEC Call Report.
\43\ Id. The 20 institutions do not include any quantitatively
well capitalized institutions that may have been administratively
classified as less than well capitalized.
\44\ The 11 products are savings accounts, interest checking
accounts, money market deposit accounts, 1-month, 3-month, 6-month,
12-month, 24-month, 36-month, 48-month, and 60-month CDs. Jumbo and
non-jumbo rate caps reported for the week of March 4, 2019, were
averaged for each of the 11 products to calculate a single rate cap
per product under the current methodology. (https://www.fdic.gov/regulations/resources/rates/historical/2019-03-04.html).
---------------------------------------------------------------------------
Five of the 17 (just under 30 percent) less than well capitalized
institutions for which data were available reported offering rates
above the national rate caps calculated under the current methodology
for seven out of the 11 products considered.\45\ Under the proposed
methodology, three institutions reported rates above the national rate
caps on two products. Thus, the number of deposit products with rates
constrained by the national rate cap is reduced for all five
institutions, and two of those institutions would be relieved of the
need to avail themselves of the local rate cap determination process.
---------------------------------------------------------------------------
\45\ This is not meant to suggest that these institutions are
not in compliance with the national rate caps, but rather that they
have sought and received local rate determinations that allow them
to offer certain products at rates above the national caps.
---------------------------------------------------------------------------
For the 3-month, 6-month, 36-month, and 48-month CD products, two
less than well capitalized small institutions reported offering rates
above the national rate caps calculated under the current methodology.
On average, the reported offering rates were 6, 13, 29, and 58 basis
points above the national rate caps, respectively.
Three institutions reported offering rates above the national rate
caps calculated under the current methodology for the 12-month and 24-
month CD products, and four reported offering rates above the national
rate caps as currently calculated for the 60-month CD product. Rates
offered on the 12-month and 24-month CD products were 37 and 45 basis
points above the national rate caps, on average. Rates offered on the
60-month CD product averaged 26 basis points above the national rate
cap for that product.
Across all deposit products offered at rates above the national
rate caps calculated under the current methodology, the rates offered
were 30 basis points above the national rate caps on average.
Had the national rate caps in effect at the time been calculated
under the proposed methodology, then two less than well capitalized
small institutions would have reported offering rates that averaged 11
basis points above the national rate cap for the 3-month CD product,
and one institution would have reported offering a rate three basis
points above the national rate cap for the 48-month CD product.
Across all deposit products offered at rates above the national
rate caps calculated under the proposed methodology, the rates offered
were 7 basis points above the national rate caps on average.
No less than well capitalized small institution reported offering a
rate above the national rate caps calculated under the current or
proposed methodology for savings, interest checking, MMDA, or 1-month
CD products during the timeframe considered.
The number of small, less than well capitalized institutions with
offered rates above the national rate caps falls from five under the
current methodology to three under the proposed methodology. Thus, the
number of small less than well capitalized institutions that need to
rely on a local rate cap is expected to fall.
The FDIC cannot more precisely quantify the effects of the proposed
rule relative to the current methodology because it lacks data on the
dollar amounts placed in deposit products broken down by the rates
offered. However, few small institutions are less than well
capitalized, and most of those small, less than well capitalized
institutions for which data were available reported rates across the 11
deposit products considered that were below the national rate caps as
calculated under both the current and proposed methodologies. For the
few less than well capitalized institutions as of March 31, 2019 whose
deposit interest rates are constrained by the current national rate cap
but not the proposed rate cap, the effect of the rule would be burden
reducing in the sense of reducing the need for local rate cap
determinations.
Based on the foregoing information, the FDIC certifies that the
proposed rule will not significantly affect a substantial number of
small entities. The FDIC welcomes comments on its analysis.
Specifically, what data would help the FDIC better quantify the effects
of the proposal compared with the current methodology?
D. Riegle Community Development and Regulatory Improvement Act
Section 302 of 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.\46\ 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.
---------------------------------------------------------------------------
\46\ 12 U.S.C. 4802.
---------------------------------------------------------------------------
Because the proposal would not impose additional reporting,
disclosure, or other requirements on IDIs, section 302 of the RCDRIA
therefore does not apply. Nevertheless, the requirements of RCDRIA will
be considered as part of the overall rulemaking process. In addition,
the FDIC also invites any other comments that further will inform the
FDIC's consideration of RCDRIA.
List of Subjects in 12 CFR Part 337
Banks, Banking, Reporting and recordkeeping requirements, Savings
associations, Securities.
Authority and Issuance
For the reasons stated in the preamble, the FDIC proposes to amend
12 CFR part 337 as follows:
PART 337--UNSAFE AND UNSOUND BANKING PRACTICES
0
1. The authority for 12 CFR part 337 continues to read:
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
2. Amend Sec. 337.6 as follows:
0
a. Revise paragraphs (a) introductory text and (a)(3)(i) through (iii);
0
b. Remove paragraph (a)(5)(iii);
0
c. Remove paragraphs (b)(2)(ii) and (b)(3)(ii) and redesignate
paragraphs (b)(2)(i) and (b)(3)(i) as paragraphs (b)(2) and (3); and
0
d. Remove paragraph (f).
The revisions read as follows:
Sec. 337.6 Brokered deposits.
(a) Definitions. For the purposes of this section and Sec. 337.7,
the following definitions apply:
* * * * *
(3) * * *
(i) For purposes of section 29 of the Federal Deposit Insurance
Act, this section, and Sec. 337.7, the terms well capitalized,
adequately capitalized, and
[[Page 46495]]
undercapitalized,\11\ shall have the same meaning for each insured
depository institution as provided under regulations implementing
section 38 of the Federal Deposit Insurance Act issued by the
appropriate federal banking agency for that institution.\12\
---------------------------------------------------------------------------
\11\ The term undercapitalized includes any institution that is
significantly undercapitalized or critically undercapitalized under
regulations implementing section 38 of the Federal Deposit Insurance
Act and issued by the appropriate federal banking agency for that
institution.
\12\ For the most part, the capital measure terms are defined in
the following regulations: FDIC--12 CFR part 324, subpart H; Board
of Governors of the Federal Reserve System--12 CFR part 208; and
Office of the Comptroller of the Currency--12 CFR part 6.
---------------------------------------------------------------------------
(ii) If the appropriate federal banking agency reclassifies a well
capitalized insured depository institution as adequately capitalized
pursuant to section 38 of the Federal Deposit Insurance Act, the
institution so reclassified shall be subject to the provisions
applicable to such lower capital category under this section and Sec.
337.7.
(iii) An insured depository institution shall be deemed to be
within a given capital category for purposes of this section and Sec.
337.7 as of the date the institution is notified of, or is deemed to
have notice of, its capital category, under regulations implementing
section 38 of the Federal Deposit Insurance Act issued by the
appropriate federal banking agency for that institution.\13\
---------------------------------------------------------------------------
\13\ The regulations implementing section 38 of the Federal
Deposit Insurance Act and issued by the federal banking agencies
generally provide that an insured depository institution is deemed
to have been notified of its capital levels and its capital category
as of the most recent date: (1) A Consolidated Report of Condition
and Income is required to be filed with the appropriate federal
banking agency; (2) A final report of examination is delivered to
the institution; or (3) Written notice is provided by the
appropriate federal banking agency to the institution of its capital
category for purposes of section 38 of the Federal Deposit Insurance
Act and implementing regulations or that the institution's capital
category has changed. Provisions specifying the effective date of
determination of capital category are generally published in the
following regulations: FDIC--12 CFR 324.402; Board of Governors of
the Federal Reserve System--12 CFR part 208, subpart D; and Office
of the Comptroller of the Currency--12 CFR 6.3.
---------------------------------------------------------------------------
* * * * *
0
3. Add Sec. 337.7 to read as follows:
Sec. 337.7 Interest rate restrictions.
(a) Definitions--(1) National rate. The weighted average of rates
paid by all insured depository institutions on a given deposit product,
for which data are available, where the weights are each institution's
market share of domestic deposits.
(2) National rate cap. The higher of:
(i) The interest rate offered on a particular deposit product at
the 95th percentile by insured depository institutions, for which data
is available, weighted by each institution's share of total domestic
deposits; or
(ii) The national rate plus 75 basis points.
(3) Local market rate cap. 90 percent of the highest interest rate
paid on a particular deposit product in the institution's local market
area. An institution's local market rate cap shall be based upon the
rate offered on a particular product type and maturity period by an
insured depository institution or credit union that is accepting
deposits at a physical location within the institution's local market
area.
(4) Local market area. An institution's local market area is any
readily defined geographical area, which may include the State, county
or metropolitan statistical area, in which the insured depository
institution solicits depositors by offering rates on a particular
deposit product.
(5) On-tenor and off-tenor maturities. On-tenor maturities include
the following term periods: 1-month, 3-month, 6-month, 12-month, 24-
month, 36-month, 48-month, and 60-month. All other term periods are
considered off-tenor maturities for purposes of this section.
(b) Computation and publication of national rate cap--(1)
Computation. The Corporation will compute the national rate cap for
different deposit products and maturities, as determined by the
Corporation based on available and reported data.
(2) Publication. The Corporation will publish the national rate cap
monthly, but reserves the discretion to publish more or less
frequently, if needed, on the Corporation's website. Except as provided
in paragraph (e) of this section, for institutions that are less than
well capitalized at the time of publication, a national rate cap that
is lower than the previously published national rate cap will take
effect 3 days after publication. The previously published national rate
cap will remain in effect during this 3-day period.
(c) Application--(1) Well capitalized institutions. A well
capitalized institution may pay interest without restriction under this
section.
(2) Institutions that are not well capitalized. An institution that
is not well capitalized may not accept or solicit deposits by offering
a rate of interest on any deposit which exceeds the national rate cap.
A less than well capitalized institution that seeks to pay a rate above
the national rate cap but not exceeding its local market rate cap,
should follow the notice provisions in paragraph (d) of this section.
(d) Notice related to local market rate cap applicability. An
insured depository institution that seeks to pay a rate of interest up
to its local market rate cap shall provide notice and evidence of the
highest rate paid on a particular deposit product in the institution's
local market area to the appropriate regional director. The institution
shall update its evidence and calculations periodically, as requested
by the appropriate regional director, and make such information
available for inspection by examination staff.
(e) Offering products with off-tenor maturities. If an institution
seeks to accept or solicit by offering a product with an off-tenor
maturity for which the Corporation does not publish the national rate
cap or that is not accepted or solicited by competing institutions
within its local market area, then the institution will be required to
use the rate accepted or solicited on the next lowest on-tenor maturity
for that product when determining its applicable national or local
market rate cap. For example, an institution seeking to accept or
solicit a 26-month certificate of deposit must use the rate offered for
a 24-month certificate of deposit to determine the institution's
applicable national or local market rate cap.
(f) Discretion to delay effect of published national rate cap. In
the event of a substantial unexpected decrease in the published
national rate cap from one month to the next, the Corporation may, in
its discretion, delay the date on which the published national rate cap
takes effect. The previously published national rate cap will remain in
effect until the effective date, as determined by the Corporation, of
the subsequent published national rate cap.
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on August 20, 2019.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2019-18360 Filed 9-3-19; 8:45 am]
BILLING CODE 6714-01-P
