Federal Deposit Insurance Corporation
55017th Street NW
Washington, DC20429
Attention: James P. Sheesley, Assistant Executive Secretary
RIN 3064–AF99
Re: Notice of Proposed Rulemaking, Unsafe and Unsound Banking Practices: Brokered Deposits Restrictions; Request for Extension of Comment Period
Ladies and Gentlemen:
The American Bankers Association, the American Fintech Council, the Bank Policy Institute, the Consumer Bankers Association, the Financial Services Forum, the Financial Technology Association, the Independent Community Bankers of America, the Innovative Payments Association, the Institute of International Bankers, the National Association of Industrial Bankers and the Securities Industry and Financial Markets Association respectfully request that the Federal Deposit Insurance Corporation withdraw the proposed rulemaking relating to the FDIC’s brokered deposit restrictions. If the proposal is not withdrawn, we request that the FDIC extend the public comment period, which currently will expire 60days after publication in the Federal Register.
We are concerned that the brokered deposits proposal would significantly alter the FDIC’s brokered deposit framework and reverse statutory interpretations without sufficient or transparent data or robust policy rationale. This is particularly concerning given the extensive, multiyear initiative that preceded the 2020 rulemaking, a process which included multiple rounds of public comment and outreach to industry, policymakers and a variety of stakeholders. With respect to the proposed changes, the FDIC does not provide sufficient information or time for thorough public consideration of the complex issues raised by the proposal. In fact, the proposal cites as support the FDIC’s 2011 study, updated in 2019, both of which were available to the FDIC when it adopted changes in 2020. As described further below, the proposal provides selected examples from “recent events” and “recent experience” but does not assess whether those examples are indicative of broader trends or how the specific proposed revisions to the brokered deposits framework would have led to different outcomes in either event. Nor does the proposal address the changes in technology and business practices since the 2020 rule was adopted, in many cases in reliance on the exceptions granted under that framework, or seriously consider how the proposed changes would affect the availability and costs of services available to customers. In the absence of data and sufficient rationale for revising the brokered deposits framework at this time, we believe the proposal should be withdrawn until the FDIC conducts additional analysis and makes it available to the public for comment.
If the proposal is not withdrawn, we request that the FDIC publish as soon as possible sufficient data to enable interested parties to comment on an informed basis and extend the public comment period for an additional 60 days following publication of such data. The data should include, at a minimum, the relevant data described below to inform the public of the new facts and circumstances that, in the FDIC’s view, support the changes that the FDIC is proposing. This would allow no fewer than 120 days following publication of the proposal in the Federal Register. Such an extension would conform the public comment period with the comment period provided when the FDIC last proposed changes to its brokered deposits regulations in 2019. In2019, the FDIC initially provided a 60-day comment period and later extended the comment period by an additional 60 days to “provide additional opportunity for the public to prepare comments to address the matters raised by the NPR.”5 Because the current proposal seeks comment on many of the same provisions that were under consideration in the2019 brokered deposits proposal, it is appropriate to allow a comparable amount of time for the public to prepare comments.
The proposal would significantly revise the FDIC’s regulations relating to brokered deposit restrictions, effectively reversing necessary changes that the FDIC implemented in its 2020 brokered deposits final rule. The proposal would likely increase significantly the proportion of deposits that are categorized and treated as brokered deposits. As a result, banks, affiliates and other relevant parties would need to reassess numerous arrangements currently in place relating to deposits, potentially leading to substantial changes in those arrangements and how customers access financial services, for seemingly no significant benefits. Moreover, classification of a deposit as “brokered” imposes regulatory costs that do not align with the risks presented by different funding types. This is particularly troubling given that Section 29 was intended to restrict the weakest banks from seeking deposits by paying higher-than-market interest rates, not to discourage healthy banks from holding a diverse funding mix or meeting the needs of their customers in a modern banking environment. In light of these significant potential effects, the FDIC should consider revisions to the brokered deposits rule only after robust data and analysis have been provided to support the proposed changes and the public has been given an opportunity to thoroughly review that information and take it into account in commenting on the proposed changes.
The proposals likely to have significant effects on bank funding and on the products and services that are available to customers.
With respect to IDIs, the proposal recognizes that it could lead banks, including those not restricted from accepting brokered deposits, to “restructure their liabilities” and “make changes to their organizationalstructure.”6 By increasing the proportion of deposits that must be classified as brokered deposits, the proposal could also result in higher deposit insurance assessment rates for many banks. For large banks, the proposal could affect requirements to maintain additional liquid assets to offset higher outflow rates assigned to brokered deposits pursuant to their calculation of relevant regulatory ratios, including the Liquidity Coverage Ratio and Net Stable FundingRatio7, as well as GSIBs’ short-term wholesale funding measure, which could impact the GSIB surcharge. In addition, if banks appear to be relying more heavily on brokered deposits than they had previously as a result of regulatory changes, there is a risk of potential adverse responses by rating agencies, depositors and investors.
The proposal also recognizes that it would affect non-bank institutions that provide services to customers and could be considered deposit brokers or lose existing primary purpose exemptions, potentially resulting in changes to these institutions’ fee and revenue structures. The proposal acknowledges that consumers who access services through affected relationships, including bank- fintech partnerships, “might experience changes in interest rates on those funds, or costs associated with placing those funds with different entities.” Therefore, the proposal could have significant effects on the availability and costs of services available to customers. As an example, the proposal could uniquely impact community banks that partner with fintech companies to offer financial products and services to traditionally underbanked communities. As another example of the scope of entities and services that may be affected by the proposal, as of March 2024, the FDIC reported 130 entities that have file notices to rely on the enabling transactions or 25 percent tests in the existing rule. The proposal would abruptly remove these exceptions and, in turn, reduce the affordability of these products—particularly those to historically underbanked consumers—creating uncertainty for numerous customers being served today and reducing access to financial products.
The proposal does not address the reasoning and record underlying many of the revisions made in the 2020 brokered deposits final rule. The 2020 final rule was the culmination of an extensive process, beginning with the adoption of an advanced notice of proposed rulemaking in 2018, which included an update of a study that the FDIC had originally conducted in 2011 of core and brokered deposits. The FDIC received over 100 comments on that notice. Approximately a year later, the FDIC published a notice of proposed rulemaking, on which the FDIC received 120 comments. Approximately another year later, the FDIC published the 2020 brokered deposits final rule. In the preamble to the final rule, the FDIC described each of the amendments made by the rule, responded to comments received in connection with the rulemaking and described expected effects of the rule. The current proposal does not address the record that the FDIC developed in connection with the earlier rulemaking or the reasons that the FDIC provided in 2020 for adopting the rule, nor does it address the reasons for potentially changing course. For example, the proposal points to the decrease in the amount of deposits reported as brokered as a reason for reopening the rule without explaining why these deposits ought to be considered brokered. Rather than engaging with the rationale provided in the 2020 final rule, the proposal frequently cites to the FDIC’s experience or its perception of confusion among institutions, but not why it disagrees with the classification of certain types of deposits as brokered or not brokered.\
This increases the difficulty for commenters to address meaningfully the rationale for the proposed changes.
Notably, the proposal does not provide factual basis for many of the changes it seeks to make. As FDIC Director Jonathan McKernan succinctly states: “This proposal does a good job of marshalling evidence of the risks posed by brokered deposits. The proposal does not, however, offer any evidence that some of the deposits that this proposal would re-classify as brokered deposits actually present the same or similar risks.”
The proposal includes anecdotes about the flows of uninsured sweep deposits at First Republic Bank and about the failure of crypto company Voyager. But it does not provide any evidence that these anecdotes are emblematic of broader trends. Itis telling that the proposal does not attempt to analyze the role that brokered deposits did—or did not—have at Silicon Valley Bank or Signature Bank. Nor does the proposal address the role of brokered deposits at the number of other banks that were reported to have large deposit outflows in March and April 2023. The FDIC’s request for information on deposits, issued concurrently with the brokered deposits proposal, acknowledges that its current data on the composition of deposits is incomplete. Without the requisite data and making all of the relevant data and information that the FDIC does have public, it will not be possible for interested parties to assess and provide meaningful comments on the proposal. It will also be difficult to assess whether or to what extent the changes proposed by the FDIC address the stated bases for the proposal.
The FDIC’s request for information on deposits, issued concurrently with the brokered deposits proposal, requests detailed information about deposits held by insured depository institutions.18 In particular, the FDIC requests information on deposit data not currently reported in regulatory reports, including to evaluate how different types of deposits may behave differently from each other, including during periods of stress; to assess how changes in reporting may help the FDIC in carrying out its responsibilities; to inform analysis of potential deposit insurance reforms; to improve risk sensitivity in deposit insurance pricing; and to enhance the data available to analysts and the public.
Fundamentally, with respect to brokered deposits—and other deposits the FDIC seeks to classify as brokered—this is the type of information that the FDIC should be providing as support for the changes it is now seeking to make. While the request for information does not seek the type of granular data on brokered deposit behavior that would be needed to support the type of changes now contemplated in the proposal, it underscores the lack of meaningful data and analysis provided. As one
FDIC Director explained, the deposits RFI and brokered deposits proposal address similar questions about bank liquidity risk and potential means to differentiate between the risks that different types of deposits pose. They also both point to the bank failures in 2023 as key events leading the FDIC deposit types. However, the FDIC has chosen to propose changes with respect to one broad category of deposits (brokered deposits and other deposits the FDIC seeks to classify as brokered) while simultaneously collecting information that could be relevant to the rulemaking. Because there has not been an opportunity for meaningful information collection and analysis to occur prior to the proposed changes, the FDIC should proactively make relevant data available as soon as possible and allow the public additional time to comment. At a minimum, the FDIC should provide enough time and make enough data available to enable the public to have an informed understanding of the proposed changes to the brokered deposits rule.
From a more practical perspective, a common set of subject matter experts at affected institutions will need to be involved to develop the information and analyses for responding to the two separate, but closely related, requests. These experts include those in deposit-taking business units, deposit operations, liquidity management, treasury, regulatory reporting and other areas. In these circumstances, it will not be feasible for banks and other interested parties to comment meaningfully on the deposits RFI and brokered deposits proposal within the provided concurrent 60-day public comment periods.
Request for release of relevant data and comment period extension
For these reasons, we request that the FDIC extend the public comment period to a date that is at least 60 days after the FDIC’s public release of relevant data. The public does not have the full range of data that is available to the FDIC about the role of brokered deposits—if any—in the spring 2023 banking turmoil. It is essential that the FDIC make this data available for the public’s comment. The FDIC should also make available data supporting the stated bases for the proposal. Accordingly, the relevant data would include the following:
· Brokered deposit data from First Republic, Signature and SVB, including amounts and types of brokered deposits, including uninsured amounts, at closing and at reasonable intervals before closing, and any analysis of that data.
· Information as to the amount of deposits at First Republic, Signature and SVB that were not reported as brokered but would have been reported as brokered pursuant to the proposal and/or prior to the2020 brokered deposits final rule.
· Data on deposit flows and loss of brokered deposits, including amounts and types of brokered deposits, in the banking industry during March and April 2023 and any analysis of that data.
· Expected costs to depositors due to reclassification of the brokered deposits definition.
· Any other data that supports the description the FDIC provides in the proposal as to the basis for the rulemaking.
We would also note that much of this information is available to the FDIC, but not to public commenters. Moreover, any attempt by industry participants to provide certain information on a collective basis would be a highly sensitive undertaking that would be complicated by confidentiality considerations and would require substantially more time than currently provided. It is therefore critical that the FDIC provide the relevant data on an aggregated basis to provide a basis for analyzing the proposed changes.
Sincerely,
Alison Tuohey
SVP, Bank Funding Policy, American Bankers Association
Ian P. Moloney
SVP, Head of Policy and Regulatory Affairs, American Fintech Council
Tabitha Edgens
SVP, Senior Associate General Counsel & Co-Head of Regulatory Affairs, Bank Policy Institute
David Pommerehn
SVP, General Counsel Head of Regulatory Affairs, Consumer Bankers Association
Sean Campbell
Chief Economist, Head of Policy Research, Financial Services Forum
Angelena Bradfield
Head of Policy, Financial Technology Association
Jenna Burke
EVP, General Counsel, Government Relations & Public Policy, Independent Community Bankers of America
Brian Tate
President and CEO, Innovative Payments Association
Stephanie Webster
General Counsel, Institute of International Bankers
Frank Pignanelli
Executive Director, National Association of Industrial Bankers
Carter McDowell
Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association
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About the American Fintech Council: The mission of the American Fintech Council is to promote an innovative, responsible, inclusive, customer-centric financial system. You can learn more at www.fintechcouncil.org.
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