The public comment period on the federal bank deposit insurer’s proposed tightening of brokered deposit restrictions has been pushed from Oct. 22 to Nov. 21, the agency announced in a recent Financial Institution Letter (FIL).
The Federal Deposit Insurance Corp. (FDIC) Board on July voted 3-2 in issuing its proposal, which would tighten up some of the easing provisions of the agency’s 2020 brokered deposits rule. Briefly, the proposal would:
- simplify the definition of “deposit broker” as well as the analysis of the “primary purpose” exception to the deposit broker definition;
- revise two of the designated business relationships under the primary purpose exception and revise the notice and application process for that exception; and
- clarify when an insured depository institution can regain status as an “agent institution” under the limited exception for a capped amount of reciprocal deposits.
The FDIC has said it has found that significant reliance on brokered deposits increases an institution’s risk profile, particularly as its financial condition weakens. In general, it said, its statistical analyses and other studies have found that an insured depository institution’s use of brokered deposits is correlated with a higher probability of failure and, when the institution fails, higher losses to the Deposit Insurance Fund (DIF).