An FDIC proposal to expand the definition of brokered deposits not only fails to justify the reason for the change, it does not meet the legal standards required of new rulemakings and raises numerous policy concerns, the American Bankers Association and nearly 60 national and state bankers and business groups said today in a trio of letters.
The FDIC board voted 3-2 in July to advance a proposed rule that would expand the definition of “deposit broker,” capturing many deposits that the groups said do not pose enhanced liquidity or other risks. FDIC Chairman Martin Gruenberg and the other Democratic board members argued the current definition — set in 2020 — was too narrow, which allowed banks to enter arrangements that presented heightened risks.
ABA and the other associations urged the FDIC to withdraw the proposed rulemaking. In its letter, ABA argued that the proposal “stretches the brokered deposit regulations beyond the intent of the law.” The association also said the proposed rule arbitrarily reverses recent policy decisions based on no or faulty data, is inconsistent with the statute upon which the regulation is based, and does not consider the costs and benefits of changing the definition.
“If finalized as proposed, the changes to the brokered deposit regulations would needlessly disrupt deposit relationships between IDIs [insured depository institutions] and third parties that were established in reliance upon a brokered deposit rule adopted by the FDIC just four years ago,” ABA said. It added that the proposal also “will impact lending activities, as IDIs seek alternative sources of funding for loans.”
In a separate letter, ABA and 52 state bankers associations also criticized the process for proposing the rulemaking as legally flawed.
“Courts have established that while an agency may update regulations, it must provide a reasoned explanation for doing so, especially when industries have relied on the current rule in making business decisions,” the associations said. “The FDIC’s proposal lacks such an explanation, fails to provide new data and overlooks the reliance interest of insured depository institutions that have structured deposits around the 2020 rule.”
ABA made similar arguments in a third letter jointly signed by the Bank Policy Institute, U.S. Chamber of Commerce, Financial Services Forum, Financial Technology Association, Independent Community Bankers of America, and Securities Industry and Financial Markets Association. “Each of these flaws, on its own, suffices to render the proposal unlawful,” the groups said.
