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FDIC seeking comments on brokered deposits, interest rate restrictions

The Federal Deposit Insurance Corp. is seeking public comment on brokered deposit regulations as it conducts a comprehensive review of the definition and interest rate regulations.

It is inviting comment on all aspects of brokered deposit and interest rate regulations, including on products that should or should not be classified as brokered.

The agency said the review is needed because of significant changes in technology, business models, the economic environment and products. It added that it continues to receive questions from banks about the definition of "deposit broker" and regulatory exceptions because of advancement in technology, business practices and products.

The FDIC said that while most institutions use brokered and higher-rate deposits prudently, these products can sometimes facilitate a bank's rapid growth in risky assets without sufficient controls. It updated its study on core deposits with new data, which it said confirmed its 2011 findings that higher brokered deposit use is sometimes associated with higher probability of bank failure and higher insurance fund loss rates.

However, the FDIC acknowledged that most banks are well-capitalized and want to use the deposits prudently.

"[T]he FDIC also recognizes that institutions sometimes are concerned that the use of brokered deposits can have other regulatory consequences, such as implications for deposit insurance pricing in certain circumstances, or may be viewed negatively by investors or other stakeholders," the regulator wrote in its 88-page advance notice of proposed rulemaking and request for comment.

The FDIC is soliciting comments on brokered deposit regulations for 90 days after publication in the Federal Register.