The FDIC is proposing changes to rules governing uninsured deposits and brokered deposits along with the approval process for industrial loan company charters.
During a July 30 board meeting, the FDIC announced it is seeking more granular information on the characteristics of uninsured deposits. The announcement followed a string of large regional bank failures in 2023, which were later attributed to Silicon Valley Bank and Signature Bank holding substantial uninsured deposits.
FDIC Chair Martin Gruenberg said banks do not currently report comprehensive information on insured and uninsured deposits. “The request also seeks comment on whether more detailed or more frequent reporting on these characteristics or types of deposits could inform a number of policy objectives, including enhancing offsite risk and liquidity monitoring,” Gruenberg noted. “A bank’s liability structure can reflect its risk-taking behavior, and information about an institution’s funding base, including data on deposits, is important in evaluating liquidity risk and interest rate risk.”
The FDIC also issued a proposal to change the standards on how banks accept brokered deposits. The proposal, passed by the FDIC board on a 3-2 vote, would simplify the definition of a deposit broker, do away with the exclusive deposit placement arrangement exception, and change the interpretation of the exception to consider the third party’s reason in placing customer funds at a particular institution.
The rule is intended to reduce brokered deposit funding risks Gruenberg said were worsened by the FDIC’s existing brokered deposit regulations issued in 2020.
“The changes would also help strengthen the important prudential protections of the brokered deposit rule required by statutory restrictions and reduce the very serious risks that brokered deposits pose to less than well-capitalized, insured depository institutions and the Deposit Insurance Fund,” Gruenberg added.
American Bankers Association President and CEO Rob Nichols criticized the brokered deposit changes, saying they would “restrict access to sources of liquidity while penalizing banks for pursuing funding sources that enable them to meet the needs of their communities.” The measure passed on a 3-2 vote, with Republican members Travis Hill and Jonathan McKernan voting against the plan.
The FDIC board also approved a proposal to increase its supervision of industrial loan companies. The plan would include additional criteria for the FDIC to review when considering the risks presented to an ILC by a parent organization and evaluate the ILC’s ability to operate independently of the parent company.
The proposal is intended to clarify the relationship between written commitments and the FDIC’s evaluation of the legal factors that apply to an industrial bank filing. The reforms are intended to minimize risks to the Deposit Insurance Fund and provide transparency for market participants, according to the FDIC.
Approval of the ILC rule came one month after the FDIC board authorized federal deposit insurance for Minneapolis-based Thrivent Financial for Lutherans through its wholly-owned subsidiary, Thrivent Financial Holdings.
Nichols also criticized the relatively busy FDIC meeting, especially after Chair Martin Gruenberg announced his pending resignation following allegations he contributed to a toxic work environment. President Joe Biden’s nomination for the position, Commodity Futures Trading Commissioner Christy Goldsmith Romero, still waits for confirmation.
“We question the need to advance an array of unrelated regulatory changes — with unusually short comment periods — that clearly lack consensus support within the agency,” Nichols said. “We will review today’s FDIC actions with our members and provide input in the weeks ahead.”
