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Financial Institution Letter

Updated Webpage For Revised Interest Rate Restrictions Applicable to Less Than Well Capitalized Institutions

March 31, 2021  |  FIL-24-2021

Summary:

On April 1, 2021, the FDIC’s revised methodology for calculating the national rate, the national rate cap, and the local market rate cap for banks that are less than well capitalized under Section 337.7 of the FDIC’s Rules and Regulations (see FIL-113-2020) go into effect. As of 8:00 AM ET on April 1, 2021, the FDIC’s webpage for the National Rates and National Rate Caps will reflect the change in calculation methodology; going forward, updated National Rates and Rate Caps will, in general, be posted on the third Monday of the month.

Statement of Applicability: This Financial Institution Letter applies to all FDIC-insured institutions.

Highlights:

Starting April 1 at 8:00 AM ET, the FDIC’s webpage for the National Rates and National Rate Caps will be revised to reflect the change in calculation methodology; going forward, updated National Rates and Rate Caps will, in general, be posted on the third Monday of the month.

The revised methodology:

  • Defines the “National Rate” as the average (weighted by market share of domestic deposits) of rates paid by all insured depository institutions (IDIs) and insured credit unions on a given deposit product.
  • Defines the “National Rate” as the average (weighted by market share of domestic deposits) of rates paid by all insured depository institutions (IDIs) and insured credit unions on a given deposit product.
  • Defines “National Rate Cap” as the higher of (1) the national rate plus 75 basis points; or (2) for maturity deposits, 120 percent of the current yield on similar maturity U.S. Treasury obligations and, for nonmaturity deposits, the Federal funds rate plus 75 basis points.
  • Defines “Local Market Rate Cap” as 90 percent of the highest interest rate paid on a particular deposit product in the IDI’s local market area and simplifies the process for using the local rate cap for less than well capitalized banks that wish to use the Local Market Rate Cap:
    • Requires IDIs to notify the FDIC of their intent to use the Local Market Rate Cap in accordance with Section 337.7(d) and to maintain appropriate supporting documentation.
    • “High-rate market area determinations” from the FDIC are not required by the rule.
  • Defines when nonmaturity deposits are considered solicited or accepted for purposes of the interest rate restrictions.

Effective April 1, 2021, FIL-69-2009 - Process for Determining If An Institution Subject to Interest-Rate Restrictions is Operating in a High-Rate Area will be rescinded.

Suggested Routing:

Chief Executive Officer
Chief Operations Officer
Chief Financial Officer
Compliance Officer