1. This does nothing to change the treatment of classic brokered deposits, which in turn leaves banks like mine with no way to fund loans for our net-borrower clientele (LMI and high minority) without running into problems in various stress testing scenarios.
2. The NPR gives no validity to the 2018 Barth Report ( https://lassonde.utah.edu/ucfs/barth-report/ ), a much more recent study on BDs than the FDIC's 2011 study. The Barth Report comes to very different conclusions than the FDIC study.
3. On page ten the NPR says that a commenter stated "brokered deposits contributed to the savings and loan crisis of the 1980's that cost taxpayers hundreds of millions of dollars." I think this is a common fallacy which helps perpetuate the stigma (next subject) against BD's. With or without BD's, the S&Ls were doomed when short term rates went to over 20% and most of their assets were in long term fixed rate loans with single digit rates. Also, can someone tell me if taxpayers have ever paid any of the tab for bank failures since the DIF was established?
4. This point would be humorous if it weren't such a serious matter. On page 46, the FDIC seems to deny that a stigma exists on BDs. "The FDIC has heard from a number of insured institutions that they perceive a stigma associated with accepting brokered deposits." The NPR then goes on to seemingly support why there should be a stigma, citing the 2011 BD study. But then they walk that back stating "Given limitations on available data, however, historical studies have not been able to differentiate the experience of banks based on different types of deposits accepted." I believe the stigma against BD's has made failed banks holding BD's more difficult and expensive to resolve, and that without that stigma there would have been lower losses to the DIF.
5. I am very encouraged that Chairman McWilliams would like the legislature to consider scrapping Section 29 and instead limit the growth of troubled institutions. Here is what she said on 12-11-19 (https://www.fdic.gov/news/news/speeches/spdec1119.pdf) :
"One option to consider is replacing Section 29 of the FDI Act altogether with a simple restriction on asset growth for banks that are in trouble. This would be a far easier regime for the FDIC to administer, would at the very least limit the size of the FDIC's potential exposure, and would more directly address the key goal of preventing troubled banks from using insured deposits to try to grow out of their problems. A simple limitation on asset growth would also be more durable and should retain its effectiveness as the industry evolves and as banks change the way they attract deposits over time."
This is the simplified solution we need and I hope everyone in the banking industry will give their support to that idea. To know that the Chairman holds this view and was willing to make her first policy statement on this topic gives banks like ours some hope that common sense has a chance to prevail. Her entire speech that day detailed her deep understanding of the case we've been trying to make, and I hope her opinion will sway many others who aren't there yet.
The brokered deposit and rate cap issues are still not getting the attention they deserve, but with Chairman McWilliams on the same page with us, we can say that much progress has been made. Thanks to Barb and Promontory for helping spread the word.
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Mary Fowler
Chief Executive Officer
The Peoples Bank
Magnolia AR
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Original Message:
Sent: 12-17-2019 09:04
From: Barb Rehm
Subject: Tuesday Topic: Liberalizing Brokered Deposit Regs
The FDIC released an 85-page proposal last week outlining how it plans to loosen its rules governing brokered deposits. The proposal seeks public input on a series of questions, but makes clear the agency expects "some amount of deposits currently designated as brokered deposits to no longer be so designated." The industry will have a couple months to provide input and then the FDIC is expected to finalize the changes. Some interesting numbers from the proposal, as of June 30:
- 8.5% of the $13 trillion in domestic deposits were classified as brokered
- 41% of insured institutions held some brokered deposits
- 3% of banks classified as not well capitalized held brokered deposits
The FDIC said just 16 banks are classified as adequately capitalized or undercapitalized and these banks held $61 million in brokered deposits. I didn't love any of the news stories on the FDIC's proposal. The Wall Street Journal decided to focus on the potential impact on competition with fintechs, concluding: "Tech firms might never be able to offer banking services directly. Changing the brokered-deposit rules could be the next best thing." American Banker did a straight summary piece, but it didn't go very deep. So I'd recommend reading the Covington law firm's detailed yet concise analysis.
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Barb Rehm
Senior Managing Director
Promontory Interfinancial Network, LLC
Arlington VA
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