Ladies and Gentlemen:
The Bank Policy Institute[1] submits this comment in response to the Federal Deposit Insurance Corporation’s notice of proposed rulemaking[2] relating to the FDIC’s regulatory framework for brokered deposits (the “NPR”). BPI has engaged extensively with the FDIC on the brokered deposits framework over many years.[3]
We believe that the proposed revisions to the FDIC’s brokered deposits regulation are inappropriate and ill-advised, even more so in light of the FDIC’s recent acknowledgement that it does not have the data necessary to understand how certain types of deposits behave and whether certain deposits are riskier than others.[4]
The proposed rule would undo many of the most important changes to the FDIC’s brokered deposits regulation that were adopted in 2021 (the “2021 Rule”)[5] to address major advances in technology, business practices and products that have occurred since the FDIC’s initial brokered deposits regulation was issued in 1990.[6] The proposed rule ignores the FDIC’s rationale for the 2021 Rule, despite the robust notice-and-comment process the FDIC undertook over a period of two years before issuing it, and, as a result, would cause many deposits that Section 29 of the Federal Deposit Insurance Act (“Section 29”) was not intended to address to be reclassified as brokered. Moreover, the NPR does not even refer to the substantial issues that would be created for banks that have implemented funding programs in reliance on the 2021 Rule.
We believe that the FDIC has not justified such sweeping changes and indeed, based on statements in the Deposits RFI issued concurrently with the NPR[7] and as demonstrated by the FDIC’s statements in the NPR,[8] does not possess the data to justify them. The FDIC makes only vague reference to recent isolated incidents,[9] none of which were related to brokered deposits, as support for some of the most important proposed changes, while also ignoring all conclusions the FDIC reached less than four years ago during the 2021 Rule rulemaking process. In fact, as described further below, recent empirical research by BPI utilizing publicly reported data on non-brokered sweep deposits shows that the FDIC’s assertions regarding at least one type of affected deposits is not supported by the data. Moreover, while the NPR repeatedly states the FDIC does not have the data necessary to estimate the amount of deposits that would be reclassified as brokered under the proposal, a BPI survey of affected members indicates the effect is likely to be significant: among a group of ten affected BPI member banks, there is estimated to be a nearly 110 percent increase in deposits held by the member banks that could be classified as brokered under the proposal. Accordingly, the FDIC should withdraw the proposed rule and consider revisions to the brokered deposits regulation only after obtaining a more complete understanding of current deposits, their characteristics and risks, and all of the costs and benefits of the proposed changes.
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[1] The Bank Policy Institute is a nonpartisan public policy, research and advocacy group that represents universal banks, regional banks, and the major foreign banks doing business in the United States. The Institute produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud, and other information security issues.
[2] FDIC, Notice of Proposed Rulemaking, Unsafe and Unsound Banking Practices: Brokered Deposits Restrictions, 89 Fed. Reg. 68244 (Aug. 23, 2024), available at https://www.govinfo.gov/content/pkg/FR-2024-08-23/pdf/2024-18214.pdf.
[3] See Letter to FDIC, from the Bank Policy Institute re: Comments to the FDIC’s Brokered Deposits NPR (Jun. 5, 2020) (the “2020 NPR Comment Letter”); Letter to FDIC, from the Bank Policy Institute re: Comments to the FDIC’s Brokered Deposits ANPR (May 6, 2019) (the “2019 ANPR Comment Letter”); Letter to FDIC, from The Clearing House Association L.L.C. (one of BPI’s predecessor organizations), the American Bankers Association, the Financial Services Roundtable (one of BPI’s predecessor organizations), the Independent Community Bankers of America, and the Institute of International Bankers re: Financial Institutions Letter FIL (51-2015): Request for Comment on Frequently Asked Questions Regarding Identifying, Accepting, and Reporting Brokered Deposits (Dec. 28, 2015); Letter to Charles Yi, General Counsel, FDIC, from The Clearing House Association L.L.C., the American Bankers Association, and the Institute of International Bankers re: Comments to January 5, 2015 Financial Institutions Letter (FIL-2-2015) (Aug. 11, 2015). BPI’s 2019 ANPR Comment Letter and 2020 NPR Comment Letter are attached hereto as Appendix A and Appendix B, respectively.
[4] See, e.g., FDIC, Request for Information and Comment, Request for Information on Deposits, 89 Fed. Reg. 63946 at 63948 (Aug. 6, 2024), available at https://www.govinfo.gov/content/pkg/FR-2024-08-06/pdf/2024-17298.pdf (the “Deposits RFI”) (“[T]he FDIC recognizes that different types of uninsured deposits may not necessarily behave the same way . . . [T]he FDIC does not have historical data on banking industry trends for these types of deposits, including how depositors for these different types of deposits would behave under conditions of economic or liquidity stress . . . [T]he FDIC is seeking information on deposits, including how banks measure or evaluate the stability of different types of deposits and whether and how banks monitor collateralized or secured deposits, or intercompany deposits, such as deposits with affiliates and subsidiaries.”).
[5] FDIC, Final Rule, Unsafe and Unsound Banking Practices: Brokered Deposits and Interest Rate Restrictions, 86 Fed. Reg. 6742 (Jan. 22, 2021), available at https://fdic.gov/sites/default/fil§es/2024-03/2020-12-15-notice-dis-a-fr.pdf.
[6] FDIC, Final Rule, Unsafe and Unsound Banking Practices, 55 Fed. Reg. 39135 (Sept. 25, 1990),
available at https://archives.federalregister.gov/issue_slice/1990/9/25/39132-39140.pdf#page=4
[7] See, e.g., 89 Fed. Reg. at 63946 (“The Federal Deposit Insurance Corporation (FDIC) is soliciting comments . . . on deposit data that is not currently reported in the Federal Financial Institutions Examination Council’s (FFIEC) Consolidated Reports of Condition and Income (Call Report) or other regulatory reports . . . ”), 63947 (“Through this request for information, the FDIC is seeking to further evaluate whether and to what extent certain types of deposits may behave differently from each other, particularly during periods of economic or financial stress.”).
[8] See, e.g., 89 Fed. Reg. 68259 (“The FDIC does not have the data necessary to estimate the amount of deposits that would be reclassified as brokered under the proposed rule.”); id. at 68259–60 (“The FDIC does not have the data to estimate the amount of deposits that would be reclassified as brokered by the proposed rule at particular IDIs, nor how many IDIs, if any, might make changes to the structure of their liabilities.”); id. at 68260 (“The FDIC does not have the data to estimate the amount of deposits that would be reclassified as brokered by the proposed rule at individual IDIs, and thus cannot estimate how many IDIs, if any, may incur costs associated with maintaining compliance with, or maintaining management buffers relative to, these regulatory ratios because of the proposed rule.”); id. (“It is possible that some IDIs may choose to make changes to the organizational structure of their institutions if the proposed rule is adopted……. The FDIC does not have the information to estimate any such changes or attendant costs.”); id. (“The FDIC believes that if the proposed rule was adopted, IDIs affected may incur some costs associated with making changes to their internal systems, policies, and procedures associated with deposit brokering activities and arrangements (especially those involving third parties). The FDIC does not have the data to be able to reliably estimate the costs associated with these changes, but expects that they are likely to be modest.”); id. (“The FDIC does not have the information necessary to estimate the proposed rule’s expected effects on deposit insurance assessments because it does not possess the data necessary to estimate the amount of deposits that would be reclassified as brokered at particular IDIs under the proposed rule.”); id. at 68264 (same); id. at 68261 (“The proposed rule may affect consumers that utilize brokered deposits, deposit placement services or arrangements…….The FDIC does not have the information necessary to estimate such changes, and therefore, discusses these effects qualitatively.”); id. (“The FDIC does not have the information necessary to quantify the potential changes in filings that are likely to occur if the proposed rule was adopted.”); id. at 68264 (“The FDIC does not have data to be able to reliably estimate the amount of deposits that would be re-classified as brokered under the proposed rule.”); id. at 68265 (“The FDIC does not have information on the number or size of potentially affected third parties.”).
[9] The specific examples cited by the FDIC are bank failures in the spring of 2023 and the failure of two crypto-related companies. See 89 Fed. Reg. at 68245, 68261 (citing failure of First Republic); id. at 68250 (citing failure of Synapse); id. at 68245, 68250 (citing failure of Voyager). The FDIC provides no evidence in the NPR that any of these failures was caused, or expedited, by brokered deposits.
