Interest Rate Restrictions on Institutions That are Less Than
Well-Capitalized
Notice of Proposed Rulemaking
The Federal Deposit Insurance Corporation (FDIC) has issued the attached Notice of Proposed
Rulemaking relating to the interest rate restrictions under Part 337.6 ("Brokered Deposits") of the
FDIC Rules and Regulations. The proposed rule would redefine the "national rate" as "a simple
average of rates paid by all insured depository institutions and branches for which data are
available." The prevailing rate in all market areas would be deemed to be the "national rate" as
defined by the FDIC.
Under Part 337.6, an insured depository institution that is less than well-capitalized may not pay a
rate of interest that significantly exceeds the prevailing rate in the institution's market area or the
prevailing rate in the market area from which the deposit is accepted. For out-of- area brokered
deposits, the "national rate," currently defined as 120 percent of the current yield on similar maturity
U.S. Treasury obligations, determines conformance with the regulation.
The current low yields on U.S. Treasury securities are compressing the national rate caps computed
under the FDIC's regulation. Therefore, the "national rates" fall well short of the national average
rates paid on certificates of deposit by depository institutions. The proposed rule would address
the problem by redefining the "national rate" for deposits of similar size and maturity as "a simple
average of rates paid by all insured depository institutions and branches for which data are
available."
Unlinking the definition of "national rate" from Treasury yields would allow the rate cap to be
calculated in a way that prevents the payment of rates that significantly exceed prevailing market
rates, but would allow depository institutions to pay the prevailing "national rates." The FDIC
originally chose to link the definition of the "national rate" to Treasury yields because it was
difficult to obtain timely and reliable data on prevailing certificate of deposit rates. However,
technological advancements and more current information now make it possible to calculate prevailing
national certificate of deposit rates in a timely manner.
The proposed rule also would specify that the prevailing rate in all market areas would be the
"national rate" as defined by the FDIC. This approach recognizes that, with the increasing
prevalence of Internet deposits and Internet advertising of deposit rates, price competition for
deposits is now more national in scope. This approach also recognizes and avoids the considerable
practical difficulties in ascertaining the origin of the deposit and calculating the prevailing
rates paid within that area. If the institution did not want to use the "national rate," the
institution could define its market area and support its position to the FDIC that the prevailing
rates in that area exceed the national average. The FDIC would assess such situations on a
case-by-case basis.
In implementing the rule, the FDIC would calculate and publish a schedule of "national rates" by
maturity and the associated rate caps for such deposits. The "rate cap" would be the "national rate"
plus 75 basis points.
Comments on the Notice of Proposed Rulemaking are due 60 days after publication in the Federal
Register.
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Sandra L. Thompson Director Division of Supervision and Consumer
Protection |
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