ICBA Policy Resolution: Brokered Deposits and the FDIC's National Deposit Rate Caps


  • Classifying deposits as brokered should entail an analysis of all relevant facts and circumstances. ICBA supports a more flexible definition of what is considered a “deposit broker” under the Federal Deposit Insurance Act.

  • The FDIC should reform its process for calculating national deposit rate caps so that they allow community banks to pay competitive rates to obtain deposits through a listing service or third-party broker. The FDIC should enforce rate caps only on less-than-well-capitalized institutions.


Brokered Deposits

ICBA believes that classifying deposits as brokered requires a thorough analysis of all facts and circumstances. For instance, a referral by a call center employee or a bank employee that shares office space with a broker dealer should not in itself be sufficient to classify a deposit as brokered. No deposit that involves a direct, continuing relationship between a customer and a bank should be considered a brokered deposit. Also, government agencies administering benefit programs should not be considered deposit brokers. ICBA supports a more flexible definition of what is considered a “deposit broker.” Although most community banks do not have a substantial amount of brokered deposits, they need clear guidelines as to who is a “deposit broker” and when a deposit is considered “brokered” since these can impact not only their CAMELS ratings but also their FDIC assessments.

FDIC National Rate Caps

Under the FDIC’s “national rate cap,” less-than-well-capitalized banks may not pay interest rates that significantly exceed the prevailing rate in the institution’s market area or the prevailing rate in the market area from which the deposit is accepted. The rate paid on out-of-area deposits cannot exceed the national rate caps. Recognizing that competition for deposit pricing has become increasingly national in scope, in 2009 the FDIC established a presumption that the prevailing rate in all market areas is the FDIC national rate cap. Also in 2009, the FDIC decided that its policy of pegging the national rate cap to 120 percent of the current yield on U.S. Treasury obligations with similar maturities was not working due to the extremely low interest rate environment. The FDIC redefined the national rate caps, for deposits of similar size and maturity, to be “a simple average of rates paid by all insured depository institutions and branches for which data is available.”

Currently, the FDIC uses a private firm to survey all insured depository institutions and their branches on the interest rates they pay, calculates the average, then adds 75 basis points to determine the national rate caps. The FDIC has rate caps for certificates of deposit of differing maturities, interest checking accounts, money market accounts, and savings accounts. These are published weekly on the FDIC website.

ICBA has significant concerns with this process. The caps do not track current Treasury yields nor the rates community banks must pay to obtain deposits through a listing service or third-party broker. Another problem with the rate caps is they are based on deposit products at all bank branches. Because the nation’s largest banks have nationwide branch networks with identical deposit products and prices, they tilt the scales on the FDIC’s calculation heavily in their favor. The rate cap also misses promotional rates for non-standard products, such as 13- or 19-month CDs. The rates on these products can be 150 to 200 basis points higher than standard rate offerings, yet they are excluded from the FDIC’s calculation. Finally, the FDIC’s calculation does not include deposit rates at credit unions, which are a primary competitor for many community banks, nor does it take into account non-interest accommodations such as discounts on bank services.

The national rate cap could be improved by the FDIC with some relatively simple fixes. First the rate cap should be calculated using one entry per bank, rather than one entry per-branch. This methodology would correct distortions created by megabank branch networks and non-traditional deposit incentives. Second, the calculation should include rates paid by credit unions. Third, rather than relying on standard CD maturity terms, the cap could incorporate a series of maturity ranges to include both traditional and promotional products. These changes would offer a fairer assessment of the deposit rates that financial services competitors offer. Finally, banks subject to enforcement orders should not necessarily be subject to unrealistically low national rate caps.

Whether or not the rate cap methodology is improved, the FDIC should only enforce the cap on less-than-well-capitalized institutions. Regulators are reportedly referencing the national rate caps during exams of well-capitalized banks and insisting that bank managers speculate as to what would happen to their deposits if their deposit rates were suddenly lowered. ICBA views this as a misuse of rate cap policy that must be ended.

Staff ContactsChris Cole