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CBAI Seeks Congressional Support for Reciprocal Deposit Legislation

In August 2, 2017 letters to the United States House and Senate leadership, the Community Bankers Association of Illinois urged lawmakers to support for H.R. 2403 and S.1500 which address the issue of reciprocal deposits inappropriately being treated as brokered deposits. Read Letters.

Reciprocal deposits are used by many community banks in Illinois and around the country to meet the needs of their customers and obtain funds to lend in their communities. Customers such as local governments require FDIC insurance on their deposited funds. With deposit insurance limits at $250,000 community banks join networks that allow them, through the use of reciprocal deposits, to ensure that those deposits are fully insured while receiving back from those network participants the amount of the shared deposits to lend back in their communities.

Reciprocal deposits are included in the definition of brokered deposits. However, reciprocal deposits did not exist when the law was enacted, and reciprocal deposits actually have all the characteristics of a bank’s core deposits. As a result, they are wrongly governed by the law on brokered deposits.

The House and Senate legislation addresses this issue and provides strong safety and soundness protections.