Section 29 of the Federal Deposit Insurance Act restricts institutions that are less than well capitalized from accepting brokered deposits, although institutions that are adequately capitalized may request a waiver from the FDIC to accept brokered deposits. Section 29 also prohibits institutions that are less than well capitalized from offering rates on deposits that are significantly higher than the prevailing rates of interest on deposits offered by other insured depository institutions in its normal market area.
In December 2020, the FDIC updated its regulations that implement Section 29 to establish a new framework for analyzing whether certain deposit arrangements qualify as brokered deposits. The new brokered deposit rule establishes bright-line standards for determining whether an entity meets the statutory definition of “deposit broker,” and a consistent process for application of the primary purpose exception. Specifically, the rule identifies a number of business relationships, or “designated exceptions,” that automatically meet the “primary purpose exception” and also establishes an application process for entities that do not meet one of the “designated exceptions” but seek a “primary purpose exception.” The rule requires entities seeking to rely on two of the “designated exceptions” to send a notice to the FDIC. Entities that submit notices or whose applications are approved may also be subject to certain reporting requirements.
The FDIC also amended its methodology for calculating the national rate as well as the national rate cap and local rate cap for less than well capitalized institutions.
Key regulations that pertain to brokered deposits:
Section 337.6 — Brokered Deposits
Federal Register notice of an additional business arrangement that meets the primary purpose exception (without requiring a notice or application)
Section 337.7 — Interest Rate Restrictions
Section 303.243(a) — Brokered Deposits Waivers
sets forth the procedures for institutions that are adequately capitalized to file a brokered deposits waiver application with the FDIC.
Section 303.243(b) — Application for Primary Purpose Exception
sets forth the notice, applications, and reporting procedures for entities that seek the primary purpose exception to the deposit broker definition.
Resources Related to Brokered Deposit and National Rate Regulations
Supplemental information related to brokered deposits.