Background:

Section 29 of the Federal Deposit Insurance Act (Section 29) was enacted by Congress in 1989, as part of the Financial Institutions Reform, Recovery, and Enforcement Act. Section 29 sets restrictions on the acceptance of brokered deposits by institutions with weakened capital positions. Congress intended to prevent troubled institutions from holding funds placed by third-parties whose primary business is “placing deposits or facilitating the placement of deposits of third parties” with insured depository institutions. 

Since 1989, statutory changes such as the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 and the Gramm-Leach-Bliley Act of 1999, along with technological advances and market changes have significantly changed the landscape of banking models and deposit gathering. FDIC has issued a multitude of interpretations in the form of advisory opinions, FAQs, and other guidance, but has not, until now, issued regulatory updates to Section 29. 

This has created disparity between FDIC’s interpretation of Section 29 and the types of deposits Congress intended to restrict. Due to a current lack of clarity, many deposits are treated as “brokered” beyond the scope of what Congress intended. This results in classifications based on outdated legal constructs rather than actual risk.

Comment Summary: 

In a comment letter filed on June 9, WBA supported FDIC’s efforts to modernize Section 29 of the Federal Deposit Insurance Act. However, the current proposal does not go far enough toward solving the fundamental problems with the current regulations, WBA’s letter says. The current proposal’s definitions of “facilitation” and “deposit broker” remain overly broad and improperly increase the scope of deposits classified as brokered. WBA offered more precise definitions in its comment.  

Additionally, WBA urged FDIC to provide examples of persons who are not considered deposit brokers. The current proposal expands coverage of the IDI Exception (which applies to insured depository institutions) to wholly owned operating subsidiaries. WBA’s letter requests additional clarity on this exception and recommends that affiliates of IDIs be excluded as well. This would bring the proposal into alignment with how modern technologies, business, and market trends have resulted in banks and their affiliates operating as a single firm.  

Read the full comment letter here.