On June 16, Sen. Jerry Moran (R-Kan.) introduced a bill to replace current restrictions on brokered deposits with an asset growth restriction. This positive change would better reflect today’s financial services environment, and it’s been a long time coming.  

Back in early March, WBA met with FDIC’s Regional Ombudsman, Daniel Marcotte. During the broad discussions, WBA expressed concerns over FDIC’s proposed revisions to brokered deposit restrictions. Marcotte encouraged Wisconsin banks to submit comments on the proposals and remain communicative with FDIC throughout the process.  

On Feb. 10, 2020 FDIC proposed a rule to revise its regulations implementing Section 29, which govern brokered deposits. After careful review of the proposal, WBA submitted a comment letter to FDIC last week supporting the agency’s efforts to modernize Section 29 but emphatically stating the current proposal does not go far enough toward solving the fundamental problems with the current regulations. WBA’s letter stated 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. 

Read more about WBA’s comment letter and additional background information about FDIC’s proposal here

Sen. Moran’s bill, S. 3962, would replace Section 29 of the Federal Deposit Insurance Act with limitations on asset growth, removing brokered deposit restrictions. Section 29 has not been updated for over 30 years, and as a result of significant market and technology changes, deposits classified as “brokered” today are mislabeled by an outdated legal construct.  

Restricting asset growth at troubled banks, instead of relying on classifying deposits as brokered or not, is a more accurate way to promote safety and soundness and prevent risk to institutions without penalizing well-capitalized banks for using modern technology.