Community bankers are hopeful that the Federal Deposit Insurance Corp. will soon deliver long-awaited reforms of how it defines high-rate deposits.
The FDIC plans to solicit comment on revamping how it determines that a deposit is brokered. The change could have huge implications for banks that are less than "well-capitalized" that face restrictions on accepting new brokered deposits, among other things.
But bankers are also eager for the agency to change its methodology for setting interest rate caps for certain banks on all of their deposits. Those caps, which also apply to banks that are less than well-capitalized, are meant to prevent banks from avoiding the brokered-funds restrictions by offering above-market yields.
“The fear of God has been put into the smaller banks by their regulators so the community banks just swear off brokered money,” said Dirk Meminger, president and CEO of Sauk Valley Bank in Sterling, Ill. “We very much appreciate the door is open to discuss the rate cap.”
While the FDIC's current methodology for setting interest rate caps was developed about a decade ago, executives and industry representatives note that FDIC's core rule defining brokered deposits was written in the nineties, before online banking existed. They argue that the rule currently captures some deposits that are not necessarily risky or come from an outside broker.
Read more in American Banker.