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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations
more detailed discussion of the rules legal basis please refer to section IB.
Description of the Rule A person meets the deposit broker definition under Section 29 of the FDI
Act if it is engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions or the business of placing deposits with insured depository institutions for the purpose of selling interests in those deposits to third parties. An agent or trustee meets the deposit broker definition when establishing a deposit account to facilitate a business arrangement with an insured depository institution to use the proceeds of the account to fund a prearranged loan.
Additionally, Section 29 provides nine statutory exceptions to the definition of deposit broker and, as noted earlier, the FDIC added one regulatory exception to the definition. The FDIC is adopting a new framework for analyzing certain provisions of the statutory definition.
Among other things, through this rulemaking, the FDIC is amending the primary purpose exception. For a more detailed description of the rule please refer to section IC Final Rule and Discussion of Comments.
Small Entities Affected The FDIC insures 5,075 depository institutions, of which 3,665 are defined as small institutions by the terms of the RFA.108 Additionally, of those 3,665
small, FDIC-insured institutions, 1,086
currently report holding some volume of brokered deposits. Further, of those 3,665 small, FDIC-insured institutions, 3,656 are currently classified as well capitalized, while nine are less than well capitalized based on capital ratios reported in their Call Reports.109

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Expected Effects There are potentially three four categories of effects of the rule on small, FDIC-insured institutions: Effects applicable to potentially any small, insured institution; effects applicable to small, less than well-capitalized institutions; effects applicable to 108 Call Report, June 30, 2020. Nine insured domestic branches of foreign banks are excluded from the count of FDIC-insured depository institutions. These branches of foreign banks are not small entities for purposes of the RFA.
109 Information based on June 30, 2020
Consolidated Reports of Condition and Income. The 9 institutions do not include any quantitatively well capitalized institutions that may have been administratively classified as less than well capitalized. See generally, FDIC12 CFR
324.403b1v; Board of Governors of the Federal Reserve System12 CFR 208.43b1v; Office of the Comptroller of the Currency12 CFR
6.4c1v.

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nonbank subsidiaries of small, FDICinsured institutions that may or may not be deemed deposit brokers; and reporting compliance requirements for small, covered entities.
All Small, FDIC-Insured Institutions The rule could immediately affect the 1,086 small, FDIC-insured institutions currently reporting brokered deposits.
Going forward, the rule could affect all 3,665 small, FDIC-insured institutions whose decisions regarding the types of deposits to accept could be affected.
The rule would benefit insured institutions and other interested parties by providing greater legal clarity regarding the classification and treatment of brokered deposits. The FDIC believes that as result of this increased clarity, the rule would reduce the extent of reliance by banks and third parties on FDIC Staff Advisory Opinions and informal written and telephonic inquiries with FDIC staff. This would have two important benefits. First, the likelihood of inconsistent outcomes, where some institutions may report certain types of deposits as brokered and others do not, would be reduced.
Second, to the extent the classification of deposits as brokered or non-brokered can be clearly addressed in regulation, the need for potentially time-consuming analyses can be minimized.
The FDIC has heard from a number of insured institutions that they perceive a stigma associated with accepting brokered deposits. Historical experience has been that higher use of deposits currently reported to the FDIC as brokered has been associated with higher probability of bank failure and higher deposit insurance fund loss rates.110 The funding characteristics of brokered deposits, however, are nonuniform. For example, brokered CDs are often used by bank customers searching for relatively high yields on their insured deposits, rather than as part of a relationship with a bank, and as such these deposits may be less stable and more subject to deposit interest rate competition. The behavior of deposits placed through certain sweep arrangements or that underlie prepaid card programs may be more based on a business relationship than on interest rate competition. Given limitations on available data, however, historical studies have not been able to differentiate the experience of banks based on the different types of deposits accepted. To the extent the rule reduces bankers perception of a stigma associated with certain types of 110 See FDICs 2011 Study on Core and Brokered Deposits, July 8, 2011.

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deposits, more institutions may be incentivized to accept such deposits.
The rule could incentivize the development of banking relationships between small, FDIC-insured institutions and other firms. The new opportunities could spur growth in the types of companies that provide third party deposit placement services, potentially resulting in greater access to, or use of, bank deposits by a greater variety of customers. Further, such growth could be of benefit to small, FDIC-insured institutions allowing them to compete against large financial institutions that are utilizing internet based deposit gathering methods across the country. It is difficult to accurately estimate such potential effects with the information available to the FDIC, because such effects depend, in part, on the future commercial development of such activities.
FDIC deposit insurance assessments would be affected by the changes to the definition of deposit broker, potentially affecting any insured institution that currently accepts brokered deposits or might do so in the future. Since 2009, significant concentrations of brokered deposits can increase an institutions quarterly assessments, depending on other factors. To the extent that certain deposits would no longer be considered brokered deposits under this rule, a banks assessment may decrease, all else equal.
Small, FDIC-insured institutions could benefit from the rule by having greater certainty and greater access to funding sources that would no longer be designated as brokered deposits, thereby easing their liquidity planning in the event they fall below well capitalized and become subject to the restrictions set forth in the law and regulations and reducing the likelihood that a liquidity failure of an otherwise viable institution might be precipitated by the brokered deposit regulations. Another benefit of the rule could result if greater access to funding sources supported small FDICinsured institutions ability to provide credit. However, these effects are difficult to estimate because the decision to receive third party deposits depends on the specific financial conditions of each bank, fluctuating market conditions for third party deposits, and future management decisions.
The rule would establish reporting requirements for IDIs and other nonbank third parties that apply for and maintain a primary purpose exception. As noted previously, however, the FDIC
anticipates that nonbank third parties are likely to apply on their own behalf, given that the information required to
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