While the coronavirus pandemic has accelerated digital banking and deposit-taking, outdated laws stand in the way of a modern regulatory treatment of deposits, American Bankers Association President and CEO Rob Nichols wrote in an American Banker op-ed today. “Today, in order to reach customers and build a stable funding base, it is necessary for banks to use a variety of business services, platforms, technologies and other relationships,” Nichols said. “Some current and future bank customers may never step inside a bank branch again, and bank exclusively online.”
However, brokered deposit statutes passed in the 1980s limit the ability of banks to adapt fully to digital banking by classifying “virtually any third party involved in gathering a deposit” as a broker, Nichols wrote—including social media partners running advertisements, fintech vendors, personal finance apps, health savings accounts and investment advisers. “Often times, brokered deposits are in fact more stable than a branch deposit,” he added.
Nichols acknowledged the work of FDIC Chairman Jelena McWIlliams to modernize brokered deposit rules but added that federal law limits the FDIC’s ability to address the problem fully. He praised the ABA-backed Asset Growth Restriction Act, introduced by Sen. Jerry Moran (R-Kan.), and urged Congress to consider the bill.