ABA: FDIC National Rate Cap Proposal Is Insufficient

The FDIC’s recent proposal to make changes to the national rate cap does not go far enough to address the problems with the current calculation methodology, the American Bankers Association said in a comment letter today. Under the FDIC’s proposal, the national rate cap would be set at the higher of 75 basis points above the national rate, or the 95th percentile of rates paid by insured depository institutions weighted by each institution’s share of total domestic deposits. The proposed rule would also allow less-than-well-capitalized institutions to offer up to 90% of the highest rate paid on a product in the institution’s local market.

While ABA expressed support for the FDIC’s effort to pursue much-needed changes to the framework, it urged the agency to return to a methodology that takes into account the interest rate and business environments in which banks are raising deposits. “A market-based approach would naturally produce a rate that factors in all bank business models and non-bank competition, and include currently excluded products such as promotional CD products, specials offered, rewards checking products, and products that are available only in the online marketplace,” ABA wrote.

The association put forth an alternative approach to the national rate cap that would involve using the higher of the pre-2009 rate cap or a new market rate that incorporates the federal funds and Treasury markets data. “This approach would be more transparent, precise and dynamic than either the current or the proposed methodologies,” ABA said.