FDIC Issues Final Brokered Deposits Rule

Community Banks, Fintechs and Their Customers to See Benefits

At its meeting on December 15, the FDIC approved a final rule on brokered deposits and its new method for computing the “national rate cap” – both of which have a significantly larger impact on institutions which are less than “well capitalized” due to the restrictions on the use of brokered deposits imposed on them. Regardless of capital adequacy measures, all insured depository institutions (IDI) are impacted by the new rule to the extent they use brokered deposits as a funding source because the new rule changes how regulators determine if a deposit is considered “brokered” thus removing some deposit products from the “brokered” classification.

According to the OCC, “Under the previous status quo, the broad definition of brokered deposits discouraged bank and fintech partnerships by imposing unnecessary burden and costs—specifically, by deeming app-based fintech services that facilitate consumer savings accounts deposit brokers. This rule recognizes that fintech partnerships help banks reach new customers and extend their services to previously unbanked and underserved populations without triggering onerous regulatory requirements.”

The FDIC’s new rule opens the door for banks to accept deposits and to partner with firms to attract new customers through the use of technology without having to classify such deposits as brokered. Times have changed. When I was in my twenties, I went into my local bank branch once a week to transact my banking. There was always a line of customers in the lobby, winding through a maze of velvet rope waiting for the next available teller.  Today, most of the twenty-somethings that I work with have never transacted business in or seen the inside of a bank lobby. They move cash back and forth amongst each other using CashApp, Venmo, Paypal – today’s consumers demand more technology and their needs are evolving. They think nothing of depositing money into an internet-only bank on the opposite coast that’s offering great rates. Today, there are more and more channels from which banks can raise deposit funds outside their market without the depositor ever stepping foot inside the bank.

Particularly now, in light of the coronavirus pandemic with many banks closing branches or reducing in-person banking activities, technology is becoming an increasingly more critical piece of the banking system and this regulation demonstrates that regulators are acknowledging changes in the marketplace, advances in technology, and their impact on the banking system.

For more information on, or a detailed discussion about this rule, contact your BNN advisor at 800.744.2444.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.

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