CBAI Urges FDIC to Modify Restrictive Deposit-Rate Caps Regulations

In a September 7, 2018 letter to Chairman Jelena McWilliams of the Federal Deposit Insurance Corporation (FDIC), the Community Bankers Association of Illinois (CBAI) urged the FDIC to modify Deposit Rate Caps in the brokered-deposit regulations to avoid the harmful consequences of these restrictions on community banks.

In its letter to the FDIC the CBAI highlighted the following issues.

  • The Deposit Rate Caps do not reflect either the realities of competitive funding or investment opportunities community banks face by not more closely equating the Caps to rates for U.S. Treasury Securities and Federal Home Loan Bank Advances.
  • The largest banks’ asset sizes, extensive branch networks and their continued too-big-to-fail subsidies negatively impact the calculation of Rate Caps which harm primarily community banks.
  • The calculation of the Rate Caps ignores promotional and negotiated rates which are more prevalent at community banks and therefore do not present a complete and accurate picture of the deposit-rate landscape, are not competitive and negatively impact a community bank’s ability to obtain new or retain existing deposits.
  • The regulations are not sufficiently tailored because they do not differentiate between a bank that is either “adequately” or “undercapitalized," where the bank is on its path toward becoming “well capitalized” and the extent of management cooperation with its regulators in resolving the capital issues.
  • The exclusion of credit unions from the calculation of the Rate Caps wrongly ignores thousands of financial institutions that are similar to community banks and would likely have a positive impact on the Caps.

The current problems and consequences of the Deposit Rate Caps are numerous and their impact on a small but not insignificant number of community banks is affecting their ability to grow and thrive. CBAI urges the FDIC to modify the brokered-deposit restrictions to avoid harmful consequences of these regulations on community banks. Read Comment Letter.