Republicans on the House Financial Services Committee, led by U.S. Reps. French Hill (R-AR) and Andy Barr (R-KY), are urging the Federal Deposit Insurance Corporation (FDIC) to withdraw a proposal that would rewrite the rules governing brokered deposits.
In a letter to FDIC Chairman Martin Gruenberg, the lawmakers said the proposal would likely force banks, including ones that do not face restrictions on acceptance of brokered deposits, to significantly alter their liability structures.
“We write to urge that the Federal Deposit Insurance Corporation (FDIC) withdraw its flawed July 30, 2024, partisan proposal to rewrite the rules governing brokered deposits. The proposal would arbitrarily and unjustifiably reverse adjustments to the treatment of brokered deposits that were finalized by the FDIC in 2020 following substantial research and analysis. Those adjustments provided much needed clarity around brokered deposits that have fostered innovation in bank deposit funding which has proven beneficial to consumers,” they wrote.
Further, the lawmakers said that the proposal does not address the actual risks that contribute to bank instability.
“The proposal aims to restrict brokered deposits for less than well-capitalized insured depository institutions (IDIs), arguing that such deposits increase an institution’s risk profile,” they said. “However, by focusing too heavily on the source of deposits, the proposal fails to adequately address the characteristics that determine deposit stability “in a fair and risk-sensitive way.
“Deposit risk is not merely a function of whether deposits are brokered or non-brokered but based on other attributes as well,” the legislators added. “The gutting of the primary purpose exemption and the enabling transactions test shows a clear disregard for actual deposit stability considerations.”
The Republicans also said the proposal could exacerbate liquidity issues rather than mitigate them, as banks may be forced to turn to more expensive or less reliable funding sources.
The lawmakers concluded that the FDIC should withdraw the proposal.