The Federal Deposit Insurance Corporation (FDIC) has issued the attached final rule
relating to the interest rate restrictions under Part 337.6 of the FDIC Rules and
Regulations. The rule redefines 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 is deemed to be the national rate as defined
by the FDIC.
Under Part 337.6, a less than well-capitalized insured depository institution 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 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 rule addresses this problem by redefining the national rate, 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 are available."
Delinking the definition of national rate from Treasury yields allows the rate cap to
be calculated in a way that prevents the payment of rates that significantly exceed
prevailing market rates, but allows 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
deposit rates in a timely manner.
The final rule also allows any depository institution to use the national rate as a
proxy for the prevailing rate in an institution's local market area. This approach
recognizes that with the increasing prevalence of Internet deposits and Internet
advertising of deposit rates, price competition for deposits is increasingly
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 does not want to use the
national rate as a safe harbor, the burden will be on the depository institution to
define its market area and support its belief to the FDIC that the prevailing rates
in that area exceed the national average. This process will be communicated in a
Financial Institution Letter before the rule's January 1, 2010, implementation date.
In implementing the rule, the FDIC will monitor and publish a schedule of national
rates by maturity and the rate caps for such deposits. Separate national rates and
rate caps will be posted for NOW accounts, Money Market Deposit Accounts (MMDAs) and
savings accounts (other than MMDAs). The rate cap will be the national rate plus 75
basis points. The national rates and national rate caps will be posted weekly and
can be viewed at http://www.fdic.gov/regulations/resources/rates/index.html.
The final rule will not take effect until January 1, 2010, because the FDIC believes
a delayed effective date may be necessary to enable insured depository institutions
to adjust to the new rules. However, the FDIC intends to post national rates and
national rate caps on its Web site immediately. These rates may assist insured
depository institutions in complying with the current and new rules. Under either
set of rules, the national rates likely represent the prevailing rates in many
markets areas. Therefore, the FDIC would not object to the immediate use of the
posted national rates and rate caps by insured depository institutions that are not
well capitalized, although such use will not be mandatory.
