Republican House members are calling for the FDIC to withdraw its brokered deposits proposal.
Reps. Andy Barr of Kentucky, French Hill of Arkansas and 20 other members of the GOP outlined their disapproval of the plan on Nov. 26. Both Barr and Hill are considered favorites to chair the House Financial Services Committee in 2025 when the GOP assumes control of Congress and the presidency.
The proposal, passed last summer 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 proposal would likely force banks, including ones that do not face restrictions on acceptance of brokered deposits, to significantly alter their liability structures,” wrote Barr and Hill. “By increasing the share for many banks that would be classified as brokered deposits, the proposal also promises to unnecessarily increase deposit insurance assessment rates for those banks.”
FDIC Chair Martin Gruenberg announced last month that he will resign one day before President-Elect Donald Trump’s Jan. 20 inauguration, leaving the fate of the brokered deposit proposal in doubt. He and other heads of federal banking regulatory agencies recently announced they don’t plan to finalize new rules before Trump’s inauguration.
Gruenberg said the rule is intended to reduce the brokered deposit funding risks worsened by the FDIC’s most recent brokered deposit regulations 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.
Hill and Barr disagreed, writing that the 2020 rulemaking under former Chair Jelena McWilliams “provided much-needed clarity around brokered deposits that have fostered innovation in bank deposit funding which has proven beneficial to consumers.” They said Gruenberg’s finding that deposits excluded from the definition of brokered deposits in the 2020 rulemaking presented similar risks relied on “unsupported conjecture and anecdotal evidence.
“The 2020 rulemaking gave consumers more choice and control over their financial decisions by supporting fintech and bank partnerships and allowing a wide array of financial products and services to be available in the market, especially for unbanked Americans,” wrote Hill and Barr. “Yet the proposal seeks to make it more difficult and less economical for the partnerships that assist in offering these products and services to consumers.”