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Brokered Deposit Modernization

Accounting for Relevant Factors in Determining Stability

ABA Position

ABA believes that the FDIC should modernize and significantly narrow its approach to designating of a deposit as “brokered.” The FDIC’s ever broadening interpretation of what deposits are considered “brokered,” unnecessarily subjects a broad swath of deposits to supervisory stigma, limits, and additional regulatory costs, even when held by well-capitalized banks.

Section 29 is currently a key driver of supervisory thinking on what constitutes a volatile deposit. This broad, outdated understanding of brokered deposits has led to supervisory bias against what, as a practical matter, is stable funding. The FDIC’s approach discourages banks from seeking funding from sources other than those historically perceived as being the most stable. ABA believes the extent to which deposits are stable or volatile varies across institutions and are based on demographics, location, relationships and experience with certain customers and products. Instead of using static definitions of liquidity, supervisors should asses a bank’s funding mix based on its business model and measurement and mitigation of its risks.

ABA also believes that the FDIC can use a more appropriate and dynamic calculation to determine the national rate cap which takes into account the markets in which banks compete.

Section 29 is currently a key driver of supervisory thinking on what constitutes a volatile deposit. This broad, outdated understanding of brokered deposits has led to supervisory bias against what, as a practical matter, is stable funding. The FDIC’s approach discourages banks from seeking funding from sources other than those historically perceived as being the most stable. ABA believes the extent to which deposits are stable or volatile varies across institutions and are based on demographics, location, relationships and experience with certain customers and products. Instead of using static definitions of liquidity, supervisors should asses a bank’s funding mix based on its business model and measurement and mitigation of its risks.

ABA also believes that the FDIC can use a more appropriate and dynamic calculation to determine the national rate cap which takes into account the markets in which banks compete.

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Alison T. Touhey

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Regulatory Policy

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