The FDIC proposed revisions to its brokered deposit regime. The proposed amendments concern "restrictions that apply to less than well capitalized insured depository institutions." Existing rules provide a definition for what constitutes brokered deposit taking activities and what constitutes a deposit broker.
FDIC Chair Jelena McWilliams stated four goals for the revisions:
- to encourage innovation and to facilitate online banking services;
- to take a "balanced approach" for interpreting Section 29 (Brokered Deposits), consistent with both the letter and spirit of the law;
- to minimize risk to the Deposit Insurance Fund; and
- to create a more consistent and efficient administrative process.
The proposal would establish a new framework for analyzing certain provisions of the "deposit broker" definition, including what constitutes "facilitating the placement of deposits" and the circumstances in which the "primary purpose exception"[*] apply. It would also establish an application process for insured depository institutions and third parties that seek to use the primary purpose exception.
Under the proposal, a person would be deemed to be engaged in the business of facilitating the placement of deposits if they, among other things: (i) share any third party information with the bank; (ii) have legal authority, contractual or otherwise, to close the account or move the third party's funds to another bank; (iii) provide assistance or are involved in setting rates or other terms for the deposit account; or (iv) act as an intermediary between a third party that is placing deposits and the bank itself, other than in an administrative capacity. The FDIC regards the proposed definition as capturing activities that indicate the person is taking an "active role in the opening of an account or maintains a level of influence or control over the deposit account even after the account is open."
Comments must be submitted 60 days after publication in the Federal Register.
[*] The statutory "primary purpose exception" to the deposit broker definition applies to an agent or nominee whose "primary purpose" is not to place funds with banks. In preamble commentary accompanying the proposal, the FDIC said that it would not grant an exception if the third party's primary purpose for its business relationship with its customers is to place funds into deposit accounts to "encourage savings," "maximize yield," "provide deposit insurance," or any similar purpose, which the FDIC believes evade the purposes of Section 29.
The FDIC's proposal marks a step in the right direction toward modernizing a regulation that has not kept up with technological change and innovation. If adopted, the proposal also would better organize an important area of law, which currently is spread out among unclear rules, circular FAQs, and opaque advisory opinions.
The proposal is not as clear as it could be. For example, the proposed definition for the "facilitation" prong of the "deposit broker" definition is much too broad and raises a host of interpretive questions. The public comment period should not be wasted. It may be many years, if not decades, until the FDIC is again willing to revisit its framework for regulating brokered deposits.
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