The Federal Deposit Insurance Corporation (FDIC) must withdraw its July 30 proposal to rewrite the rules governing brokered deposits, say U.S. Reps. French Hill (R-AR) and Andy Barr (R-KY) and 19 of their Republican colleagues on the U.S. House Financial Services Committee.
“This FDIC rule would likely force banks, including ones that do not face restrictions on acceptance of brokered deposits, to significantly alter their liability structures,” wrote the lawmakers in a Nov. 25 letter sent to FDIC Chairman Martin Gruenberg. “The proposal does not address the actual risks that contribute to bank instability.”
The FDIC’s proposal, they wrote, “would arbitrarily and unjustifiably” reverse adjustments to the treatment of brokered deposits that were finalized by the FDIC in 2020 following substantial research and analysis.
“Those adjustments provided much needed clarity around brokered deposits that have fostered innovation in bank deposit funding which has proven beneficial to consumers,” the lawmakers wrote.
And while the FDIC’s July 30 proposal cites the bankruptcy of Synapse Financial Technologies and the banking instability of last March as justifications for the undoing of the 2020 rule on brokered deposits, the committee members wrote that the FDIC is relying on unsupported conjecture and anecdotal evidence.
“In fact, the only analytical evidence used to justify this policy reversal is a study on core and brokered deposits conducted in 2011 and updated in 2017, to inform the 2020 rulemaking,” they wrote.
Additionally, the FDIC’s proposal fails to address the negative impact it will have on consumers and only pays lip service to the consumers who would be harmed, according to their letter.
“The 2020 rulemaking gave consumers more choice and control over their financial decisions by supporting fintech and bank partnerships and allowing a wide array of financial products and services to be available in the market, especially for unbanked Americans,” they wrote. “Yet the proposal seeks to make it more difficult and less economical for the partnerships that assist in offering these products and services to consumers.”
Among other concerns, the Republicans also wrote that the proposal doesn’t address the actual risks that contribute to bank instability, and aims to restrict brokered deposits for less than well-capitalized insured depository institutions, arguing that such deposits increase an institution’s risk profile.
“However, by focusing too heavily on the source of deposits, the proposal fails to adequately address the characteristics that determine deposit stability ‘in a fair and risk-sensitive way,’” they wrote.
The lawmakers recommended that “the FDIC withdraw the proposal to allow a fresh perspective to guide the agency forward rather than finalizing this controversial proposal in the final months of [Gruenberg’s] tenure.”