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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations
regional office and to examination staff during any subsequent examinations.
The FDIC is declining to adopt recommendations by commenters that the local rate cap be higher than 90
percent of the highest local rate. Given the changes being made to the national rate cap described above, the FDIC
expects the need for banks to resort to the local rate cap to be less frequent, and, in such cases, 90 percent of the highest local rate will provide a meaningful cap while allowing the institution to compete for funds in its local market. The FDIC is also not revising the proposed rule to include internet rates, because the FDIC believes that it would be inconsistent with the concept of a local rate to include institutions that do not have a physical location in the local market and internet rates, which are offered nationally, are reflected in the national rate.
4. Off-Tenor Maturity Products If an institution seeks to offer a product with an off-tenor maturity for which the FDIC does not publish the national rate cap or that is not offered by another institution within its local market area, then the institution will be required to use the rate offered on the next lower on-tenor maturity for that product when determining its applicable national or local rate cap, respectively. For example, an institution seeking to offer a 26-month certificate of deposit, and no other local institution is offering a 26-month certificate of deposit, must use the rate offered for a 24-month certificate of deposit to determine the institutions applicable national or local rate cap.
On-tenor maturities are defined to include the following term periods: 1month, 3-months, 6-months, 12-months, 24-months, 36-months, 48-months, and 60-months. All other term periods are considered off-tenor maturities. There is no off-tenor maturity for nonmaturity products such as interest checking accounts, savings accounts, or money market deposit account.

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H. Alternatives Below are alternatives, other than those described above, that were considered as part of this final rulemaking.
Average of the Top-Payers Some commenters suggested that the FDIC use an average of the top rates paid as the national rate cap. As an example, the FDIC could set the national rate cap based upon the average of the top-25 rates offered by product type. Under this approach, the FDIC
would interpret that a less than well
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capitalized institution significantly exceeds the prevailing rate in its normal market area if it offers a rate that is above the average of the top rates offered in the country. This approach would be simple to administer and the FDIC would be able to provide real-time rate caps because it would no longer need to maintain and review the extensive data it receives from third party data providers to calculate averages.
The FDIC decided not to choose this approach due to the same data limitations as the proposed 95th percentile prong, as described in Part II.
Additionally, the subset of banks paying the highest rate may have a small market share and have little to no influence over competitive rates paid in the market. Further, this same small subset of banks could be significant outliers from the rates offered by the market.
Incorporate Specials and Promotions Into the Current National Rate Calculation Several commenters suggested that the FDIC change its methodology in calculating the current national rate and include additional inputs for the published rates, such as special negotiated rates or other monetary bonus offers. As discussed in Part II, 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, offtenor maturities, negotiated rates, cash bonuses, and non-cash rewards.
However, as noted, the FDIC will continue to explore ways and additional data sources to improve the national rate calculation in the future.
One Vote per Institution Commenters also recommended that published rates be limited to the highest rate offered by each depository institution rather than incorporating rates paid at all branches. According to commenters, this would prevent a skewing effect on the national rate by the largest institutions with the most branches. In considering this alternative, the FDIC analyzed the impact of this change by comparing the yield curves for the 12-month CD, the current national rate cap using all branches and the national rate cap using the highest rate offered by each IDI in other words, each institutions receives one vote.92 The differences in rates range from 15 to 52 basis points, 92 84

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with a range of 25 basis points between 2012 through 2017.
The FDIC did not choose this alternative because, in the FDICs view, the one-bank, one vote approach would result in a national rate that would not be as reflective of market rates currently being offered as weighting by market share. The FDIC believes that institutions with more deposits have a greater impact on competition and the market rates.
Federal Home Loan Bank Borrowing Rate Many commenters suggested that the FDIC amend the current national rate calculation and use the Federal Home Loan Bank FLHB borrowing rate for each maturity. The FDIC chose not to propose the FHLB borrowing rate for several reasons. The FHLB borrowing rate is not based upon rates offered by institutions,93 but is instead based upon the cost of funds for FHLB member institutions and requires that FHLBs obtain and maintain collateral from their members to secure the advance.
Collateral requirements and borrowing interest rates may also vary based on an insured depository institutions financial condition. Moreover, FHLB
advances, unlike deposit products, are not insured and not guaranteed by the U.S. government. In addition, there are 11 different FHLB districts, all that establish their own rates that may vary between districts. For these reasons, the FDIC does not believe that the FHLB
borrowing rate would be a reliable indicator of rates offered on deposits by insured depository institutions.
I. Expected Effects The interest rate restrictions apply to an insured depository institution that is less than well capitalized under PCAs capital regime. An institution may be less than well capitalized either because: 1 Its capital ratios fall below those set by the federal banking agencies for an institution to be deemed well capitalized; or 2 it otherwise meets the capital requirements for the well capitalized category, but is subject to a written agreement, order, capital directive, or prompt corrective action directive issued by its primary regulator that requires the institution to meet and maintain a specific capital level for any capital measure.94
93 Section 29 of the FDI Act restricts less than well capitalized institutions from offering a rate of interest that is significantly higher than the prevailing rates of interest on deposits offered by other insured depository institutions. 12 U.S.C.
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94 FDIC12 CFR 324.403b1v; Board of Governors of the Federal Reserve System12 CFR

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