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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations
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environment, while continuing to ensure that less than well capitalized institutions do not solicit or accept deposits by offering interest rates that significantly exceed prevailing rates on comparable deposit products.
B. Background Under Section 29 of the FDI Act, well capitalized institutions are not subject to any interest rate restrictions.
However, the statute imposes interest rate restrictions on insured depository institutions that are less than well capitalized, as defined in Section 38 of the FDI Act. The statutory restrictions are described in detail below.
Brokered deposits accepted pursuant to a waiver and certain reciprocal deposits. Institutions that are less than well capitalized may not pay a rate of interest on brokered deposits accepted pursuant to a waiver, or on reciprocal deposits excluded by Section 29 from being considered brokered deposits, that significantly exceeds the following:
1 The rate paid on deposits of similar maturity in such institutions normal market area for deposits accepted in the institutions normal market area; or 2
the national rate paid on deposits of comparable maturity, as established by the FDIC, for deposits accepted outside the institutions normal market area. 70
Adequately capitalized institutions.
Institutions that are adequately capitalized may not engage in the solicitation of deposits by offering rates that are significantly higher than the prevailing rates of interest on deposits offered by other insured depository institutions in such depository institutions normal market area. 71 For institutions in this category, the statute restricts interest rates in an indirect manner. Rather than simply setting forth an interest rate restriction for adequately capitalized institutions to accept brokered deposits, the statute defines the term deposit broker to include any insured depository institution that is not well capitalized . . . which engages, directly or indirectly, in the solicitation of deposits by offering rates of interest which are significantly higher than the prevailing rates of interest on deposits offered by other insured depository institutions in such depository institutions normal market area. 72 In other words, the depository institution itself is a deposit broker if it solicits deposits by offering rates significantly higher than the prevailing rates in its own normal market area.
Without a waiver, the institution cannot 70 12
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accept deposits from a deposit broker.
Thus, the institution cannot accept these deposits from itself. In this indirect manner, the statute prohibits institutions in this category from soliciting deposits by offering rates significantly higher than the prevailing rates in the institutions normal market area.
Undercapitalized institutions. In this category, institutions may not solicit deposits by offering rates that are significantly higher than the prevailing rates of interest on insured deposits 1
in such institutions normal market area;
or 2 in the market area in which such deposits would otherwise be accepted. 73
C. Regulatory Approach The FDIC has implemented the statutory interest rate restrictions through two rulemakings.74 While the statutory provisions noted above set forth a basic framework based upon capital categories, they do not provide certain key details, such as definitions of the terms significantly exceeds, significantly higher, market, and national rate. As a result, the FDIC
defined these key terms via rulemaking in 1992. Both the national rate calculation and the application of the interest rate restrictions were updated in a 2009 rulemaking.
Significantly Exceeds or Significantly Higher. 75 Through both the 1992 and the 2009 rulemakings, the FDIC has interpreted that a rate of interest significantly exceeds another rate, or is significantly higher than another rate, if the first rate exceeds the second rate by more than 75 basis points.76 In adopting this standard in 1992, and subsequently retaining it in 2009, the FDIC offered the following explanation: Based upon the FDICs experience with the brokered deposit prohibitions to date, it is believed that this number will allow insured depository institutions subject to the interest rate ceilings . . . to compete for funds within markets, and yet constrain their ability to attract funds by paying 73 12

U.S.C. 1831fh.
FR 23933 1992; 74 FR 26516 2009.
75 The FDIC has not viewed the slight verbal variations in these provisions as reflecting a legislative intent that they have different meaning and so the agency has, through rulemaking, construed the same meaning for these two phrases.
76 12 CFR 337.6b2ii, b3ii and b4. The FDIC first defined significantly higher as 50 basis points. 55 FR 39135 1990. As part of the 1992
rulemaking, commenters suggested that the FDIC
define significantly higher as 100 basis points. In response, the FDIC defined significantly higher as 75 basis points.
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rates significantly higher than prevailing rates. 77
Market. In the FDICs regulations, as implemented through both the 1992
and 2009 rulemaking, the term market is any readily defined geographical area in which the rates offered by any one insured depository institution soliciting deposits in that area may affect the rates offered by other insured depository institutions in the same area. 78 The FDIC determines an institutions market area on a case-bycase basis.79
The National Rate. As part of the 1992 rulemaking, the national rate was defined as follows: 1 120 percent of the current yield on similar maturity U.S. Treasury obligations; or 2 In the case of any deposit at least half of which is uninsured, 130 percent of such applicable yield. In defining the national rate in this manner, the FDIC
understood that the spread between Treasury securities and depository institution deposits can fluctuate substantially over time but relied upon the fact that such a definition is objective and simple to administer. 80
By using percentages 120 percent, or 130 percent for wholesale deposits, of the yield on U.S. Treasury obligations instead of a fixed number of basis points, the FDIC hoped to allow for greater flexibility should the spread to Treasury securities widen in a rising interest rate environment.
Additionally, at the time of the 1992
rulemaking, the FDIC did not have readily available data on actual deposit rates paid and used Treasury rates as a proxy.
Prior to the 2009 rulemaking, yields on Treasury securities plummeted precipitously, driven by global economic uncertainties, which resulted in a national rate that was lower than deposit rates offered by many institutions. As part of the 2009
rulemaking, with access to data on offered rates available on a substantially real-time basis, the FDIC redefined the national rate as a simple average of rates paid by all insured depository institutions and branches for which data are available. 81
The Prevailing Rate. The FDIC has recognized, as part of its regulation on interest rate restrictions, that 77 57 FR 23933, 23939 1992; 74 FR 26516, 26520
2009.
78 57 FR 23933 1992; 74 FR 26516 2009.
79 12 CFR 337.6f.
80 57 FR 23933, 23938 June 5, 1992.
81 74 FR 26516 2009. The 2009 rulemaking also recognized, based on the FDICs experience, that some institutions still do compete for particular products within their local market areas, and provided a safe harbor for those institutions.

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