Scott’s bipartisan bill increases capital at rural community banks

America’s community banks would be better positioned to meet the credit needs of the local families, workers and small businesses they serve under bipartisan legislation introduced last week by U.S. Sen. Tim Scott (R-SC). 

“This bipartisan bill empowers smaller, local banks to compete with bigger banks for deposits,” Sen. Scott said.

The Minority Deposit Institution and Community Bank Deposit Access Act, S. 3562, which Sen. Scott sponsored on Feb. 2 alongside cosponsor U.S. Sen. Maggie Hassan (D-NH), would amend the Federal Deposit Insurance Act to ensure that certain custodial deposits of well-capitalized insured depository institutions are not considered to be funds obtained by or through deposit brokers, according to the congressional record bill summary. 

The bill would clarify existing Federal Deposit Insurance Corporation (FDIC) policy to state that under safe circumstances, well-capitalized community banks, minority deposit institutions and community development financial institutions may accept custodial deposits without facing additional regulatory requirements or scrutiny, according to a summary provided by Sen. Scott’s staff. 

By resolving such regulatory uncertainty, S. 3562 would promote more third-party deposits to small community financial institutions allowing them to be reinvested into underserved communities, the summary says, and would permit minority credit unions to access the National Credit Union Administration’s Community Development Revolving Loan Fund.

“As we saw throughout the pandemic, rural and minority business owners faced especially difficult challenges finding lending options,” said Sen. Scott. “Increasing access to capital at local banks that serve lower-income borrowers and rural communities will help expand financial opportunities for the hard working families, farmers and small business owners who live there.”