6742 Federal Register /Vol. 86, No. 13/Friday, January 22 ...

1 6742 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / rules and Regulations 112 1831f (also referred to herein as Section 29 ). 2 See Public Law 101 73, August 9, 1989, 103 Stat. 183. Federal DEPOSIT insurance corporation 12 CFR Parts 303 and 337 RIN 3064 AE94; 3064 AF02 Unsafe and Unsound Banking Practices: Brokered deposits and Interest Rate Restrictions AGENCY: Federal Deposit insurance corporation (FDIC). ACTION: Final rule. SUMMARY: The FDIC is finalizing revisions to its regulations relating to the brokered deposits and interest rate restrictions that apply to less than well capitalized insured depository institutions.

2 For brokered deposits , the final rule establishes a new framework for analyzing certain provisions of the deposit broker definition, including facilitating and primary purpose. For the interest rate restrictions, the FDIC is amending its methodology for calculating the national rate, the national rate cap, and the local market rate cap. Further, the FDIC is explaining when nonmaturity deposits are accepted and when nonmaturity deposits are solicited for purposes of applying the brokered deposits and interest rate restrictions. DATES: Effective Date: April 1, 2021; with an extended compliance date of January 1, 2022, as provided in section I(C)(4).

3 FOR FURTHER INFORMATION CONTACT: Rae- Ann Miller, Senior Deputy Director, (202) 898 3898, Division of Risk Management Supervision; or Vivek V. Khare, Counsel, (202) 898 6847, Legal Division. SUPPLEMENTARY INFORMATION: Table of Contents I. Brokered deposits A. Policy Objectives B. Background 1. Historical Statutory Framework 2. Current Regulation 3. Advance Notice of Proposed Rulemaking 4. Overview of Notice of Proposed Rulemaking and Comments Received C. Final Rule and Discussion of Comments 1. Deposit Broker Definition a. Exclusive Deposit Placement Arrangements b. Engaged in the Business of Placing deposits c. Engaged in the Business of Facilitating the Placement of deposits d.

4 Engaged in the Business of Placing deposits With Insured Depository Institutions for the Purpose of Selling Interests in Those deposits to Third Parties 2. Exceptions to the Deposit Broker Definition a. Bank Operating Subsidiaries and the IDI Exception b. Primary Purpose Exception 3. Notice and Application Process for the Primary Purpose Exception a. Notice Requirement b. Notice Contents and Reporting Requirement c. Overview of the Application Process d. Application Contents e. Reporting for Approved Applicants f. Monitoring for IDIs g. Requesting Additional Information, Requiring Re-Application, Imposing Additional Conditions, and Withdrawing Approvals h.

5 Additional Third Parties 4. Effective Date and Extended Compliance 5. Prior FDIC Staff Advisory Opinions D. Discussion of Certain Other Deposit Placement Arrangements Raised by Commenters E. Other Supervisory Matters Related to Brokered deposits F. Alternatives G. Expected Effects II. Interest Rate Restrictions A. Policy Objectives B. Background C. Regulatory Approach D. Need for Further Rulemaking E. Advance Notice of Proposed Rulemaking and Notice of Proposed Rulemaking 1. National Rate 2. National Rate Cap 3. Local Rate Cap 4. Off-Tenor Maturity Products F. Discussion of Comments 1. Discussion of Public Comment on the National Rate 2.

6 Discussion of Public Comment on the National Rate Cap 3. Discussion of Public Comment on Local Rate Cap 4. Discussion of Other Comments G. Final Rule 1. National Rate 2. National Rate Cap 3. Local Market Rate Cap in the Final Rule 4. Off-Tenor Maturity Products H. Alternatives I. Expected Effects III. Treatment of Nonmaturity deposits A. Background B. Proposed Rulemakings C. Comments D. Final Rule 1. Solicitation of Funds by Offering Rates of Interest 2. Acceptance of Brokered deposits 3. Acceptance of Brokered deposits Subject to a Waiver Into a Nonmaturity Account 4. Summary of Treatment of Nonmaturity deposits IV. Administrative Law Matters A.

7 Paperwork Reduction Act B. Regulatory Flexibility Act C. Riegle Community Development and Regulatory Improvement Act of 1994 D. Congressional Review Act E. Use of Plain Language I. Brokered deposits A. Policy Objectives Significant technological changes have affected many aspects of the banking industry, including the manner in which banks source deposits . For many banks, brokered deposits are an important source of funds, and the marketplace for brokered deposits has evolved in response to technological developments and new business relationships. The FDIC recognizes that its regulations governing brokered deposits are outdated and do not reflect current industry practices and the marketplace.

8 As such, the FDIC initiated an extensive rulemaking process to seek input from stakeholders and to develop new regulations that take into consideration current industry practices and that allow for continued innovation. Banks often collaborate with third parties, including financial technology companies, for a variety of business purposes including access to deposits . Moreover, banks are increasingly relying on new technologies to engage and interact with their customers, and it appears that this trend will continue. Through this rulemaking process, the FDIC attempted to ensure that the brokered deposit regulations would continue to promote safe and sound practices while ensuring that the classification of a deposit as brokered appropriately reflects changes in the banking landscape.

9 B. Background 1. Historical Statutory Framework Section 29 of the Federal Deposit insurance Act (FDI Act)1restricts the acceptance of deposits by certain insured depository institutions (or IDIs ) from a deposit broker. Section 29, entitled Brokered deposits , was added to the FDI Act by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). The law originally restricted troubled institutions ( , those that did not meet the minimum capital requirements) from (1) accepting deposits from a deposit broker without a waiver and (2) soliciting deposits by offering rates of interest on deposits that were significantly higher than the prevailing rates of interest on deposits offered by other insured depository institutions having the same type of charter in such depository institution s normal market Two years later, Congress enacted the Federal Deposit insurance corporation Improvement Act of 1991 (FDICIA), which added the Prompt Corrective Action (PCA)

10 Capital regime to the FDI Act and also amended the threshold for VerDate Sep<11>2014 20:25 Jan 21, 2021 Jkt 253001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\ 22 JAR2jbell on DSKJLSW7X2 PROD with RULES26743 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / rules and Regulations 3 See Public Law 102 242, Dec. 19, 1991, 105 Stat 2236. 4 See 12 1831f. 5 See id. 6 See id. 712 1831f(i)(2)(E). 8 See 12 CFR The FDIC issued two rulemakings related to the interest rate restrictions under this section. The FDIC is also adopting a final rule for the interest rate restrictions as discussed in Part II of this Notice.