Financial industry groups pushed for an extension of the comment period tied to a brokered deposit rule the Federal Deposit Insurance Corp. proposed in July.
A coalition of 11 trade groups called for an additional 60 days to provide comments on the request for information — on top of the 60-day comment period that’s typically part of the FDIC’s rulemaking process.
The comment period is meant to gather data influencing the stability and franchise value across various deposit types. The data would then be used to fine-tune deposit insurance calculations, enhance liquidity regulations and optimize other regulatory measures, the groups wrote Wednesday in a letter to the FDIC.
“It is essential then, that the FDIC have a robust and accurate data set from which to work, and that any additional reporting requirements be sensible and workable for banks of all sizes and their affiliates, particularly affiliated broker-dealers, and their customers,” the trade groups wrote. “Given the importance of the RFI and its implications for future changes … the Associations believe that an additional 60 days will provide the Associations and their members the requisite time to furnish responses and data that fulsomely address the questions and issues raised within the RFI,” the letter said.
The letter was signed by representatives of the American Bankers Association, American Fintech Council, Bank Policy Institute, Electronic Transactions Association, Financial Services Forum, Financial Technology Association, Independent Community Bankers of America, Innovative Payments Association, Institute of International Bankers, National Association of Industrial Banks, and Securities Industry and Financial Markets Association.
The groups highlighted the open-ended nature of the RFI and the technical nature of the information requested, saying significant research is required to address each critical issue raised.
The RFI covers various topics, including current deposit monitoring methods, potential new account types and their impact on deposit insurance, and additional data collection needs. Further, the trade groups highlighted that the FDIC is looking for extensive feedback without specifying preferred data types or formats.
“The RFI requests ‘what additional data, including more granular or more frequently reported data, should be considered for collection’ without providing any clear guidance on the type or format of data that should be considered,” the trade groups wrote.
The FDIC last month proposed restricting institutions that are not well-capitalized from accepting brokered deposits. However, adequately capitalized institutions could request a waiver from the FDIC to accept brokered deposits.
The proposed rule aims to expand the definition of deposit brokers while effectively undoing a 2020 rule change. This reversal would reinstate restrictions on less-capitalized banks' access to volatile or “hot money” deposits, which the previous rule had loosened.
Brokered deposits have attracted criticism since at-risk banks can sometimes make their books look stronger when longer-term customers start withdrawing their money. However, critics say that short-term gains and losses can lead to unpredictability. Brokers may bail out banks if they come under stress, but they usually look for high returns, which cost banks more.
The FDIC argues that banks that rely heavily on brokered deposits would cost the Deposit Insurance Fund more — if the bank were to fail.
“More recent events have also underscored the uncertain nature of third-party funding arrangements,” FDIC Chair Martin Gruenberg said in a statement in July, citing the bankruptcy of crypto-heavy Voyager Digital in 2022 and the failure of First Republic Bank last year.
The FDIC’s board of directors issued the proposal following a 3-2 vote.
Earlier this month, ABA CEO Rob Nichols said the proposed rule “would restrict access to sources of liquidity while penalizing banks for pursuing funding sources that enable them to meet the needs of their communities.”
Nichols also cited the timing of an upcoming transfer of power at the FDIC, from which Gruenberg said he would resign once a successor is approved by the Senate.
“Given the pending change in FDIC leadership, we question the need to advance an array of unrelated regulatory changes — with unusually short comment periods — that clearly lack consensus support within the agency,” Nichols said.
