HSA Council Comments to FDIC re: Brokered Deposits

Dear Mr. Feldman:

Thank you for the opportunity to comment on the Federal Deposit Insurance Corporation’s(FDIC) advanced notice of proposed rulemaking (ANPR) on brokered deposits. TheAmerican Bankers Association’s HSA Council represents about ninety-four percent of allthe Health Savings Accounts (HSAs) in the United States and the millions of Americans whofinance their healthcare with these plans. The Council’s comments should be read as acompanion to and an augmentation of comments submitted separately by the ABA and arerestricted to the subject of HSAs under this rule.

We agree with the FDIC, that since reform of Section 29 of the Federal Deposit InsuranceAct (FDIA) as part of the Financial Institutions Reform, Recovery and Enforcement Act(FIRREA) of 1989, significant changes in technology and financial product evolutionwarrant a review of the regulations and guidance that together constitute the FDIC’sapproach to brokered deposits.

This is particularly true in the case of HSAs, in that these products were not even inventeduntil fifteen years after FIRREA’s passage.

Congressional Intent

FIRREA set restrictions on the acceptance of brokered deposits by institutions withweakened capital positions and was intended to isolate funds placed by entitites whoseprimary business is “placing deposits or facilitating the placement of deposits of thirdparties” to insured depository institutions.

Congress, through FIRREA, intended to restrict troubled banks from holding significantquantities of risky deposits, which were bundled by intermediaries bringing together investors and investment products. Additionally, congress intended to distinguish betweenproviding a banking or financial service and acting as a “deposit broker.”

Congress also intended to insulate the deposit insurance system, in the words ofSenator Murkowski (R-AK), “from troubled institutions that take excessive risksand leave the taxpayers to suffer the consequences. By preventing troubledinstitutions from using brokered deposits – unless permitted to do so by the FDIC– we accomplish this goal and create accountability on the part of the FDIC.”

Congress never intended deposits involving a direct, continuing relationship between acustomer and a healthy insured depository institution to be considered “brokered”deposits as the quote from Senator Murkowski, FIRREA’s co-sponsor, makes abundantlyclear.

History and Growth of HSAs

The HSA statute was enacted by congress in 2003 as part of a larger Medicare expansionlaw creating prescription drug benefits. The FDIC has previously acknowledged the publicbenefit of HSAs. In a 2013 consumer advisory the agency noted that, with an HSA, “You cansave money that can help you avoid a shock to your finances from a sudden large medicalbill.”

Since 2003, tens of millions of Americans now finance their healthcare with an HSA and theHSA-qualifying insurance that goes with it4. HSAs are a growing feature of both Americanhealthcare financing and increasingly, retirement planning. Devenir Research says by theend of 2020, they expect HSA assets to approach $75 billion and cover approximately 30million accounts.

In other words, HSAs are an important and growing part of employee benefit strategies andare the only health benefit product in the United States that is portable. They werespecifically designed so that employees who move from job to job can associate their HSAwith their new employer’s HSA-qualifying health plan. This is possible because HSAs areowned by individuals, in all cases, not employers or any other third party - there are noexceptions.

Conclusion

The FDIC’s effort to modernize the deposit broker rules is a welcome one and we lookforward to participating in this important work. In light of their stated purpose andownership characteristics, we recommend that HSAs continue to be treated as they arecurrently, which is as core deposits. We respectfully suggest that the FDIC’s deposit brokerrules should be considered inapplicable to these products by definition.

Respectfully,

J. Kevin A. McKechnie
Executive Director