Dear Assistant Executive Secretary Sheesley:
The U.S. Chamber of Commerce (the “Chamber”) Center for Capital Markets Competitiveness submits these comments in response to the Federal Deposit Insurance Corporation’s (the “FDIC”) proposed revisions to the brokered deposits framework, entitled Unsafe and Unsound Banking Practices: Brokered Deposits Restrictions (the “Proposal”).
The Chamber believes the FDIC fails to articulate the need for updates to the current regulatory framework for brokered deposits. Additionally, the FDIC does not provide data to support the changes outlined in the Proposal. A federal court would likely find this rulemaking to be arbitrary and capricious if not supported by a clear rationale and supporting data.[1] Additionally, the Commission should not engage in promulgating Midnight Regulations and pause the current proceeding until the next presidential administration.
The most recent revisions to the brokered deposits regulations are only four years old and have not manifested a threat to the stability of insured depository institutions (“IDIs”) or the broader financial system. In fact, altering the regulatory regime would cause significant disruptions to IDIs’ current deposit structure and existing business relationships. The Proposal would significantly increase the number of deposits that are considered brokered and increase the operational burden associated with the framework, which would make it more difficult and costly for well-capitalized IDIs to accept a range of deposits. The result would be significant changes to a range of deposit relationships and, by extension, the ability for customers to access valuable financial services. Additionally, the Proposal would result in higher funding costs for all products and services, further harming IDIs’ ability to support the needs of their customers. The Chamber is concerned that the FDIC has not studied the potential negative consequences the Proposal would have on IDIs, their customers, and the American economy.
Background
The Chamber commented on the brokered deposit rule finalized in 2020 (herein, the “2020 rule”), stating that, we “believe[] it will make important updates to the brokered deposit framework reflecting recent innovations in our modern financial system and make it easier for financial companies to meet the evolving needs of consumers.”[2] For example, online banking and mobile payment products have revolutionized how and where banks gather deposits and engage with their customers. Some banks now operate exclusively online or have fintech subsidiaries that provide deposit accounts to both consumers and small businesses. The 2020 rule updates appropriately captured and considered the new landscape of the American financial system, while appropriately protecting the safety and soundness of the banking system.
Unfortunately, the Proposal would undo many of the important reforms from the 2020 rule and result in an array of stable deposits being treated as brokered under the FDIC’s regulations, without adequate, evidence-based justification for this treatment. The FDIC should recognize that fostering a strong relationship between banks and their customers necessitates offering a wide range of integrated and convenient products and services, which may be aided by technological solutions and third-party relationships. The 2020 rule helped strengthen these relationships and offered consumers benefits through increased access to the banking system. However, the Proposal, much like the brokered deposit regime in place before the 2020 rule, would hinder financial institutions’ ability to deliver high quality services for consumers.
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[1] https://uscode.house.gov/view.xhtml?req=granuleid:USC-2000-title5-section706&num=0&edition=2000
[2] https://www.uschamber.com/assets/documents/ccmc/6.9.20_CCMC_BrokeredDeposits_FDIC.pdf
