State Bankers Association Letter to the FDIC on the Proposed Expansion of Deposit Broker Definition

Dear Mr. Sheesley:

The American Bankers Association and the undersigned state bankers' associations are writing to share our concerns about recent and further expected changes to the FDIC's brokered depositrule. We recommend that the FDIC withdraw the Notice of Proposed Rulemaking (NPR) due to both public policy and legal concerns.

The NPR is based on an outdated understanding of brokered deposits and banking markets, reversing reforms that the FDIC made to the brokered deposit regulation in 2020. The NPR is also legally flawed. Courts have established that while an agency may update regulations, it must provide a reasoned explanation for doing so, especially when industries have relied on the current rule in making business decisions. The FDIC's proposal lacks such an explanation, fails to provide new data, and overlooks the reliance interest of insured depository institutions (IDIs) that have structured deposits around the 2020 rule. Furthermore, the NPR does not meet legal standards requiring the agency to consider all relevant aspects of the issue, including regulatory costs and benefits.

If finalized, the NPR could have significant negative consequences for IDIs and the customers they serve. Congress initially enacted restrictions on brokered deposits in 1989, following the failure of certain banks and savings and loans that used brokered certificates of deposit (CDs) to support risky, and at times, fraudulent activities. These restrictions were focused on preventing less than well capitalized institutions from relying on potentially unstable funding sources.

Download the joint comment letter to read the full text.