FDIC Federal Register Citations

To: Comments@fdic.gov
Subject: FDIC Rule Proposal (RIN 3064-AD35)

FDIC Executive Secretary Feldman:

I am a Louisiana banker who is writing to comment on the above mentioned proposal.  On October 16, 2008, the Federal Deposit Insurance Corporation (FDIC) issued a Notice of Proposed Rulemaking (the "Notice") proposing significant changes to its deposit insurance assessment regulation. 

I am concerned that the proposal does not differentiate CDARS Reciprocal deposits from traditional brokered deposits, and believe that the factual differences support the FDIC's exclusion of CDARS deposits from the definition of brokered deposit for purposes of the adjusted deposit ratio and the brokered deposit adjustment.

CDARS Reciprocal Deposits
The Certificate of Deposit Account Registry Service (CDARS) is a service that enables banks to provide customers with FDIC-insured certificates of deposit through the CDARS network.  When a customer deposits a sum of money greater than $250,000, the excess funds are placed into certificates of deposit issued by other banks in the network.  Banks rely on CDARS deposits as a stable source of core funding.

Cost of CDARS Deposits vs. Traditional Brokered Deposits
The reasons for charging a higher assessment on brokered deposits do not in any way apply to CDARS deposits.  In particular, banks have been able to consistently raise funds through CDARS at costs lower than the costs of traditional brokered deposits.  In fact, banks have typically been able to raise funds via CDARS Reciprocal at 52 to 84 basis points below the national brokered market.  Consequently, there is no reason to pay higher interest rates to customers with CDARS deposits than the rate that prevails in the local markets.  The CDARS program simply allows banks to offer their customers Federal deposit insurance on large dollar deposits.  CDARS deposits are therefore no more costly than other stable sources of funding. 

CDARS deposits do not exhibit the characteristics that justify the FDIC's increased assessment rule for brokered funds. 

Separate Reporting for CDARS Deposits
As far as I can determine, the Notice does not provide any reason for categorizing CDARS deposits as brokered deposits, other than CDARS Reciprocal is reported as brokered deposits in call reports.  Banks would be happy to report CDARS Reciprocal deposits separately on call reports. 

For the above reasons, I believe the FDIC should exclude CDARS deposits from the definition of brokered deposit for purposes of the adjusted deposit ratio and the brokered deposit adjustment.  Further, I call on the FDIC to amend the definition of brokered deposits, as it is currently used in the Federal Deposit Insurance Act so that CDARS deposits are accurately categorized as the stable source of funding that they are. 

I appreciate the opportunity to comment on the FDIC's proposed regulation.