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FDIC proposes redefining brokered deposit definitions

The Federal Deposit Insurance Corp. on Dec. 12 issued a proposed rule that will revamp how the U.S. banking regulator classifies brokered deposits.

Regulators monitor brokered deposit activity due to concerns that the funding could vanish in a financial crisis, leaving banks with a liquidity crisis. But bankers have pressed for a rewrite, arguing that new forms of deposits, such as health savings accounts, carry little flight risk yet are subject to the brokered definition.

The proposed rule will alter the definition of a "deposit broker" and introduces a new framework for entities to apply for exceptions. The rule outlines that individuals meet the deposit broker definition if they are "engaged in the business of placing deposits" on behalf of a third party.

The proposed rule then refines the definition for individuals who have been deemed to "facilitate" the placement of third-party deposits, listing four types of activities that would meet the "facilitation" component of the definition and result in a "deposit broker" designation: sharing third-party information with the depository institution; having legal authority to close an account; providing assistance in setting rates or fees for the deposit account; and acting as an intermediary, outside of a purely administrative capacity, between a third party placing deposits on behalf of a depositor and an insured depository.

Separately, the rule also proposes changing the definitions for two exceptions to the deposit broker definition: the exception for insured depository institutions for funds placed with that institution and the exception for an agent or nominee whose primary purpose is not the placement of funds. The change to the primary purpose exception introduces certain "bright-line" tests that focus on the agent's relationship with its customers. For example, if less than 25% of the customer's assets under management with an agent are placed at an insured depository, the agent would be exempted.

Comments are due by 60 days after the rule is published in the Federal Register.