FDIC Chair Jelena McWilliams advocated for the modernization of the brokered deposits regime, which was implemented by FDIA Section 29 in 1989.

In remarks at the Brookings Institution in Washington, D.C., Chair McWilliams criticized Section 29 - which generally stops banks from accepting brokered deposits once they fall below a minimum level of capital. She referred to the Section as a "blunt tool." According to Chair McWilliams, Section 29:

  • unduly punishes banks with a lack of capital by denying them access to a stable source of liquidity when they are "most in need of [it]";
  • does not clearly define a "deposit broker," resulting in inconsistent interpretations of the term;
  • does not address banking services conducted solely online; and
  • has created a "fragmented, opaque legal regime."

Chair McWilliams announced that the FDIC has drafted a new framework for regulating brokered deposits that the Board will consider on December 12, 2019. Chair McWilliams stated that the four goals of the framework are to:

  1. encourage innovation and facilitate online banking services;
  2. take a "balanced approach to interpreting Section 29," consistent with the spirit of the law;
  3. minimize the risk to the Deposit Insurance Fund ("DIF"); and
  4. create a more consistent and efficient administrative process.

Chair McWilliams noted that the final decision on the brokered deposits statute rests with Congress, urging Representatives to address the issues caused by the current regime. Specifically, she advised Congress to either:

  • replace Section 29 with a "simple restriction on asset growth for banks that are in trouble"; or
  • remove the primary purpose exception in Section 29 - which requires the FDIC to interpret the purpose of each potential U.S. deposit broker - and replace it with a "more flexible exception based on actual risk to the DIF."

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