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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations
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claimed would allow a less than well capitalized bank to offer competitive rates on deposits while not going so far above normal market rates as to exacerbate potential safety and soundness issues. Another national association representing stakeholders in the banking industry recommended that a less than well capitalized institution be permitted to offer at least up to 95
percent of the competing institutions rate on a particular product in order to allow additional flexibility.
A state-level banking association recommended that internet rates and listing service rates be considered when deciding the local rates with which an institution competes. A banker stated that the proposal is better than the current method of calculating local rates, but suggested that the calculation include internet rates.
Commenters from more rural areas drew a distinction between funding operations in rural areas versus funding operations in more urban settings. One commenter wrote that banks in rural areas may not have access to sufficient local deposits and need to be able to attract deposits through other mechanisms, such as online. One commenter suggested that caps should relate to a banks funding method, as there are often different rates offered at branches, on-line at the same branch, and at a branchless bank. A single rate may result in a cap that is too high for banks with many branches and too low for branchless banks.
4. Discussion of Other Comments One national trade association commended the FDIC for revising its Risk Management Supervision Manual of Examination Policies to clarify that national rate caps apply only to institutions that are less than well capitalized. Despite this recent clarification to the Manual, several bankers urged the FDIC to make clear to its examiners that the national rate cap may not be used to evaluate well capitalized banks and should not be used as a proxy to evaluate financial products of well capitalized banks.
One banker reiterated a comment he made in response to the ANPR that the interest rate restrictions should not apply to a bank that has capital ratios that satisfy the well capitalized category but is deemed adequately capitalized because it is subject to a consent agreement that includes a capital maintenance provision. The commenter indicated that applying the interest rate restrictions to such an institution serves as a strong disincentive to investors injecting additional new capital into an institution experiencing difficulties
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because there is no guarantee the FDIC
will not impose onerous rate restrictions regardless of the amount of capital invested.
G. The Final Rule As described in further detail below, the final rule amends the FDICs methodology for calculating the national rate, the national rate cap, and the local rate cap. The final rule also provides a new simplified process for institutions that seek to offer a competitive rate when the prevailing rate in an institutions local market area rate exceeds the national rate cap.
1. National Rate The FDIC is adopting the national rate methodology generally as proposed, but revised to include the rates offered by credit unions. After considering the comments that indicated that credit unions compete with banks on a national scale, the FDIC is finalizing the proposed national rate definition, replacing the interest rate average weighted by branches with an average where each institutions interest rate is weighted by its share of deposits, with the addition of credit union rates. As described in the Interest Rate NPR, calculating the national rate by market share, rather than branch count, more accurately reflects the marketplace, and provides more emphasis on institutions with large or exclusive internet presence as described by commenters. However, the FDIC has not been able to find sufficient reliable, robust data to include in its national rate calculation the interest rates on deposit products with special features, such as rewards checking, off-tenor maturities, negotiated rates, cash bonuses, and noncash rewards.
2. National Rate Cap In this final rule, the FDIC is adopting the proposed national rate cap with a modification in response to comments.
This formulation retains one prong of the national rate cap that was proposed, i.e., the national rate, weighted by deposits and now including credit unions as described above, plus 75
basis points, which will likely be the higher of the rates produced by the two proposed prongs in low interest rate environments such as the period between 2008 and 2015 and in the current period since March 2020.
However, the FDIC has replaced the other proposed prong, the rate offered at the 95th percentile of rates weighted by domestic deposit share, which would likely be the higher of the rates produced by the two prongs during more normal market conditions. For this
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prong, the final rule substitutes a rate that is 120 percent of the current yield on similar maturity U.S. Treasury obligations, plus 75 basis points. For nonmaturity deposits, the second prong will be the federal funds rate of interest, plus 75 basis points. This method is consistent with the alternative that was set forth in the proposal.
Thus, the national rate cap being adopted is the higher of: 1 The national rate, as revised to be based on weighting by deposits rather than branches and including credit unions, plus 75 basis points; or 2 120 percent of the current yield on similar maturity U.S. Treasury obligations, plus 75 basis points. The Treasury-based second prong also provides that, for nonmaturity deposits, the prong would be the federal funds rate, plus 75 basis points.
The FDIC is replacing the proposed 95th percentile prong with a cap based on Treasury yields or federal funds, because, and as noted in the Interest Rate NPR, there are certain data limitations with the proposed methodology. Specifically, the data gathered from third party sources is based upon information provided directly by institutions or made available via public sources. As such, some rates being offered for certain products are left unreported or unpublished and therefore may not be captured as part of the data set used to determine the proposed 95th percentile prong.
These limitations are more apparent today than when the FDIC adopted its 2009 regulations that first pegged the national rate calculation to a methodology based upon deposit rates.
This is because the 2009 methodology was implemented during a recessionary period, and more recently, a significant number of insured depository institutions offer products with less standard features that often times are either negotiated or not readily provided to third party sources.
As part of this rulemaking process, and in response to commenter concerns about the data limitations, the FDIC
reviewed additional data sources to determine whether these data sets could provide a more reliable reflection of the deposit rate market. While some data is available for a certain number of less traditional deposit products, it is difficult to accurately calculate an annual percentage yield APY for certain products without more granular data. For example, deposit products that pay rates based upon certain balance thresholds, or the number of transactions made within a specific time period, would require the calculation of
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