A coalition of financial industry trade associations are calling on the Federal Deposit Insurance Corporation (FDIC) to withdraw a proposal concerning brokered deposits.
The proposed changes to the brokered deposits rule would significantly expand the definition of deposit broker, significantly narrow the primary-purpose exclusion, and rescind the agency’s approval of existing deposit arrangements that are currently treated as non-brokered. They said it would also reverse changes the agency made in 2020-2021 and flout the intent of the underlying statute.
While the statute was intended to restrict weak banks from gathering deposits at excessively high rates through third parties, the proposal would inappropriately encompass many lower-risk deposits, the coalition said. This would raise costs for banks and could make financial services more costly and difficult for customers to access.
“The proposed rule, if adopted without significant changes, would be arbitrary and capricious on several grounds,” the coalition wrote in a letter to the FDIC. “The proposal fails to justify the agency’s change in position since 2021, consider the costs imposed on businesses that have built themselves around the existing rules or explore obvious alternatives. The FDIC also fails to assess the economic or legal effects of the proposal. And, without justification, the proposal lumps together different types of deposits as ‘brokered’ without any meaningful analysis of the very different underlying business models of third parties who place their customers’ deposits with banks. These flaws make the proposal illegal, and the FDIC should withdraw it.”
The coalition consists of the American Bankers Association, Bank Policy Institute, U.S. Chamber of Commerce, Financial Services Forum, Financial Technology Association, Independent Community Bankers of America and SIFMA.
The group added that the proposal fails to consider the economic cost of disrupting businesses’ ability to place customer deposits at banks, or the harm to underbanked customers who access financial services through nonbank partnerships with banks.
Also, they say it is inconsistent with the law governing brokered deposits as the proposal would treat many more deposits as brokered when compared to the governing law. Further, it would define brokered deposits too broadly, interpret the exclusions too narrowly and require banks to request FDIC permission to treat deposits as non-brokered, among other conflicts
In addition, the coalition said the FDIC fails to justify or explain its reversal of the 2021 rules. Further, they said the agency doesn’t consider clear alternatives that could result in fewer costs and less disruption, such as omitting certain types of deposits from the rule based on their unique characteristics or grandfathering in existing deposit arrangements reliant on the 2021 rule.
The coalition concludes that, in the absence of data and analysis justifying the proposal, it should be withdrawn.