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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations
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As noted above, as of June 30, 2020, 10 FDIC-insured institutions had capital ratios that put them in a PCA category lower than well capitalized.95 The FDIC
reviewed the deposit interest rates offered for 11 products during the month of September 2020 by nine of these institutions for which data were available. None of the nine less than well capitalized institutions offered interest rates above the current or the final rules national rate caps for any product reviewed.96
The definition of local and national rate cap established by the final rule is likely to benefit FDIC-insured institutions. The FDIC believes that the definition of national rate cap adopted by the final rule is more sensitive to a range of interest rate environments. The final rule establishes a more transparent methodology for calculating the national rate cap which should benefit FDICinsured institutions by facilitating ease of compliance and simplifying their liquidity planning.
The greater sensitivity of the national rate cap in this final rule to prevailing interest rates would likely reduce the potential for severe liquidity problems or liquidity failures at viable banks to arise solely as a result of the operation of the cap. The FDIC believes this aspect of the rule is important, although difficult to quantify given uncertainties about both the future interest rate environment and the future condition of banks. On the other hand, to the extent rate caps are less restrictive, the leeway for some less than well capitalized institution to continue to fund imprudent operations could increase. In this regard, the FDIC believes the final rule continues to comport with the statutory purpose of preventing less than well capitalized institutions from soliciting deposits at interest rates that significantly exceed prevailing deposit interest rates.
The final rule could benefit depositors by enabling them to earn higher rates of return on their deposits. It is difficult to estimate this expected effect because the effect would depend on the future economic and financial conditions, and the rates of return of competing products, among other things.
Finally, the final rule could pose some modest regulatory costs for FDICinsured institutions associated with making the necessary changes to 208.43b1v; Office of the Comptroller of the Currency12 CFR 6.4c1v.
95 The 10 institutions do not include any quantitatively well capitalized institutions that may have been administratively classified as less than well capitalized.
96 Some institutions offered fewer than 11
products.

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policies, procedures and internal systems in order to achieve compliance with the final rule.
III. Treatment of Nonmaturity Deposits for Purposes of the Brokered Deposits and Interest Rate Restrictions A. Background Section 29 provides that an insured depository institution that is not well capitalized may not accept funds obtained, directly or indirectly, by or through any deposit broker for deposit into 1 or more deposit accounts emphasis added.97
Section 29 also contains two interest rate restrictions, one based on when funds are accepted by an institution, the other on when an institution solicits deposits. One restriction provides that an adequately capitalized institution accepting brokered deposits pursuant to a waiver granted under Section 29c of the FDI Act or reciprocal deposits may not pay a rate of interest that, at the time the funds are accepted, significantly exceeds the prevailing rate.98 The other interest rate restriction prohibits a less than well capitalized institution from soliciting any deposits by offering a rate of interest that is significantly higher than the prevailing rate.99
For CDs and other maturity deposits, the timing of when funds for such deposits are accepted is straightforward, and Section 29 directs that such funds are accepted when the maturity deposit is renewed or rolled over.100 For deposits credited to a nonmaturity account, however, Section 29 does not provide express direction or guidance on when such a deposit is accepted or solicited. Applying these concepts of solicitation and acceptance to nonmaturity deposits is more relevant today than at the time that the law was enacted, in 1989. At that time, brokered deposits were almost exclusively maturity deposits. However, since 1989, nonmaturity brokered deposits have become more commonplace.
97 12

U.S.C. 1831fa.
U.S.C. 1831fc.
99 12 U.S.C. 1831fg3 and h. The restriction in section 1831fg3 operates to deem any less than well capitalized institution a deposit broker and such deposits brokered deposits, if the institution solicits deposits by offering a rate of interest significantly higher than the prevailing rate. As a deposit broker, such an institution may only accept such deposits if it is adequately capitalized and has received a waiver under section 1831fc. If below adequately capitalized, pursuant to section 1831fg3, the institution would be prohibited from accepting such funds because a deposit broker may not accept brokered deposits and cannot not obtain a waiver to do so. Section 1831h results in the same prohibition for undercapitalized institutions.
100 12 U.S.C. 1831fb.
98 12

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In recent years, there has been some confusion regarding the FDICs application of section 29 to nonmaturity deposits. The FDIC is adopting an interpretation in a clear, transparent way, through notice and comment rulemaking, to address such confusion.
B. Proposed Rulemakings Accordingly, through this rulemaking process, the FDIC considered approaches for when nonmaturity deposits held by less than well capitalized institutions are subject to the interest rate and brokered deposits restrictions.
In the Interest Rate NPR, the FDIC
indicated that it was considering an interpretation under which nonmaturity deposits would be viewed as accepted and solicited for purposes of the interest rate restrictions at the time any new nonmaturity funds are placed at an institution.
Under the proposed interpretation, balances in an existing money market demand account or other savings account, as well as transaction accounts, at the time an institution fell below well capitalized would not be subject to the interest rate restrictions unless or until new funds were deposited into those accounts. If funds were deposited to such an account after the institution became less than well capitalized, the entire balance of the account would be subject to the interest rate restrictions.
Interest rate restrictions would apply to any new nonmaturity deposit accounts opened after the institution fell below well capitalized.
In the Brokered Deposits NPR, the FDIC considered a similar approach for brokered deposits as it did for interest rate restrictions. For brokered nonmaturity deposits, the FDIC
considered an interpretation under which nonmaturity brokered deposits are viewed as accepted for the brokered deposits restrictions at the time any new nonmaturity funds are placed at an institution by or through a deposit broker.
Under this proposed interpretation, brokered balances in a money market demand account or other savings account, as well as transaction accounts, at the time an institution falls below well capitalized, would not be subject to the brokered deposits restrictions.
However, if brokered funds were deposited into such an account after the institution became less than well capitalized, the entire balance of the account would be subject to the brokered deposits restrictions. If, however, the same customer deposited brokered funds into a new account and the balance in that account was subject
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