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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations
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APYs based upon granular data at the individual depositor level that is unavailable, or to make general assumptions that would likely result in less reliable APY calculations.
Nonetheless, based on historical data samples the FDIC evaluated, it appears that including the non-traditional deposit products that have a calculable APY in the proposed 95th percentile methodology would generally result in a relatively small increase in applicable rate caps. However, these data samples and analysis had limitations, and the observations may not be robust across all banks and all markets; as a result, the FDIC plans to further explore these issues in the future rather than adopt this methodology as proposed.
As noted above, the final rule retains the first proposed prong for the national rate cap national rate +75 basis points.
The FDIC is retaining this prong, as proposed, notwithstanding the data limitations described above, because 1
based upon review of the historical information, the first prong will be substantially similar to the branch-based methodology that the FDIC has used for over a decade, 2 the 75 basis point buffer ameliorates, though does not eliminate, some of the potential data concerns,89 and 3 including a second prong not based on deposit data ensures the FDIC is not fully relying on deposit data in calculating the national rate cap.90 The FDIC will continue to explore ways and additional data sources to improve the national rate calculation and will continue to consider pegging the national rate cap entirely to deposit rates in the future.
Nevertheless, the FDIC acknowledges that replacing the proposed 95th percentile prong with a cap based on Treasury rates or federal funds rates addresses concerns raised by commenters about the transparency of the underlying data that the FDIC uses to calculate the national rate, as well as the perceived difficulty in replicating the methodology. Further, a national rate cap applicable during normal market conditions based on the 95th percentile of rates is vulnerable to an institution, or a few institutions, with a large deposit share affecting the 95th 89 As shown in the appendices, for the period of low interest rates during 2010 to 2015, and from March 2020 to the present, the 75 basis points added to the national rate did not restrict less than well capitalized institutions from competing for market-rate deposits when U.S. Treasury yields were near zero.
90 As shown in the appendices, for the periods of 1992 and 2008 and 2015 to early 2020, during periods of more normal interest rate environments, the national rate cap based on Treasuries is more reactive to increases in deposit rates than the first prong.

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percentile by withdrawing or introducing a product into the market or initiating a significant rate change.
While such fluctuations, caused by factors other than data limitations, would be reflective of changes in the market, these changes could cause volatility in the national rate cap.
As another reason for using a Treasuries-based rate as one of the rate cap prongs, the FDIC notes that it had previously determined that the Treasuries-based rates plus 75 basis points represented a reasonable threshold above which rates significantly exceeded or were significantly higher than the national rate. This determination was relatively effective for the 16 years between 1992
and 2008 and was only changed in 2009
to the current national rate cap formula because, in part, Treasury-based rates fell significantly below deposit rate averages in the low interest rate environment associated with the financial crisis at that time. It is apparent that neither the current methodology nor the Treasuries-based rate works in all interest rate environments, the methodology adopted by the final rule is expected to be durable under both high-rate or risingrate environments and low-rate or falling-rate environments.
Additionally, the FDIC will change from publishing the national rates and national rate caps weekly, to publishing such data monthly to limit the need for institutions to continually check the national rates. However, the FDIC may in certain circumstances publish the national rates and national rate caps more or less frequently, such as during a time of unusual rate volatility.
With respect to nonmaturity deposits, there is no Treasury security of comparable duration. In the Interest Rate NPR, the FDIC asked if the overnight federal funds rate should be used for nonmaturity deposits instead of U.S. Treasury securities products.
Several commenters recommended that the FDIC use the federal funds rate.91
In the final rule, for nonmaturity products, in lieu of the Treasury-based calculation, the second prong of the national rate cap is the federal funds rate plus 75 basis points. The FDIC
notes that, historically, the rate for the three-month Treasury security has tracked closely the federal funds rate.
The FDIC has selected the federal funds rate as the reference point for nonmaturity deposits under the second prong because, as an overnight deposit, Federal funds are conceptually closer to nonmaturity deposits.
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FR 46470, 46480 and 46492.

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The charts attached in Appendix 2 of this notice reflect historical data for the interest rates of insured depository institutions that would have resulted from the two prongs of the national rate cap being adopted. The charts also show the average of top rates offered for interest checking, savings, and money market demand accounts, as well as CDs for terms of 1-month, 3-months, 6months, one-year, two-years, threeyears, and five-years.
3. Local Market Rate Cap in the Final Rule In the final rule, the FDIC is adopting the proposed local market rate cap of 90
percent of the highest offered rate in the institutions local market geographic area. Specifically, a less than well capitalized institution may provide evidence that any bank or credit union with a physical presence in its local market area offers a rate on a particular deposit product in excess of the national rate cap. The local market area may include the State, county or metropolitan statistical area, in which the insured depository institution accepts or solicits deposits. The less than well capitalized institution will be allowed to offer 90 percent of the competing institutions rate on the particular deposit product to customers located within the less than well capitalized institutions local market area.
The final rule also eliminates the current two-step process where less than well capitalized institutions request a high rate determination from the FDIC and, if approved, calculate the prevailing rate within local markets.
Instead, a less than well capitalized institution must notify its appropriate FDIC regional office that it intends to offer a rate that is above the national rate cap and provide evidence that an insured depository institution or credit union with a physical presence in the less than well capitalized institutions normal market area is offering a rate on a particular deposit product in its local market area in excess of the national rate cap. The less than well capitalized institution would then be allowed to offer 90 percent of the rate offered by the competing institution in the institutions local market area to customers physically located within the institutions local market area. The institution would be expected to calculate the local rate cap monthly, maintain records of the rate calculations for at least the two most recent examination cycles and, upon the FDICs request, provide the documentation to the appropriate FDIC

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