Letter to the FDIC on the Proposed Expansion of Deposit Broker Definition

Dear Mr. Sheesley:

The American Bankers Association (ABA) appreciates the opportunity to submit this comment letter on the Federal Deposit Insurance Corporation's (FDIC) proposed revisions (the "NPR") to its regulations relating to the brokered deposits restrictions that apply to less than well-capitalized insured depository institutions (IDIs).

The NPR would revise the definition of "deposit broker;" modify the application of the "primary purpose" exception to the deposit broker definition; and modify two of the designated business relationships under the primary purpose exception. The NPR also would make changes to the notice and application process for the primary purpose exception and clarify when an IDI may regain status as an "agent institution" under the limited exception for a capped amount of reciprocal deposits.

For the legal and policy reasons set forth below, ABA does not support the changes to the brokered deposit framework proposed in the NPR and recommends that it be withdrawn.

The NPR does not meet the legal standards required for rulemaking under the Administrative Procedure Act (APA) and is inconsistent with the statute upon which it is based. The NPR perpetuates an unnecessary and harmful stigma of brokered deposits that stretches the brokered deposit regulations beyond the intent of the law. The NPR also fails to sufficiently justify the proposed changes to the brokered deposit regulations; it does not provide data to support the proposed changes to the brokered deposit regulations; and it does not address the costs and benefits of the proposed changes.

If finalized as proposed, the changes to the brokered deposit regulations would needlessly disrupt deposit relationships between IDIs and third-parties that were established in reliance upon a brokered deposit rule adopted by the FDIC just four years ago (the "2020 Final Rule").

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