Interest Rate Restrictions on Institutions That Are Less Than Well Capitalized

Published date04 September 2019
Citation84 FR 46470
Record Number2019-18360
SectionProposed rules
CourtFederal Deposit Insurance Corporation
Federal Register, Volume 84 Issue 171 (Wednesday, September 4, 2019)
[Federal Register Volume 84, Number 171 (Wednesday, September 4, 2019)]
                [Proposed Rules]
                [Pages 46470-46495]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2019-18360]
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                FEDERAL DEPOSIT INSURANCE CORPORATION
                12 CFR Part 337
                RIN 3064-AF02
                Interest Rate Restrictions on Institutions That Are Less Than
                Well Capitalized
                AGENCY: Federal Deposit Insurance Corporation (FDIC).
                ACTION: Notice of proposed rulemaking.
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                SUMMARY: The FDIC is seeking comment on proposed revisions to its
                regulations relating to interest rate restrictions that apply to less
                than well capitalized insured depository institutions. Under the
                proposed rule, the FDIC would amend the methodology for calculating the
                national rate and national rate cap for specific deposit products. The
                national rate would be the weighted average of rates paid by all
                insured depository institutions on a given deposit product, for which
                data are available, where the weights are each institution's market
                share of domestic deposits. The national rate cap for particular
                products would be set at the higher of the 95th percentile of rates
                paid by insured depository institutions weighted by each institution's
                share of total domestic deposits, or the proposed national rate plus 75
                basis points. The proposed rule would also greatly simplify the current
                local rate cap calculation and process by allowing less than well
                capitalized institutions to offer up to 90 percent of the highest rate
                paid on a particular deposit product in the institution's local market
                area.
                DATES: Comments will be accepted until November 4, 2019.
                ADDRESSES: You may submit comments on the notice of proposed rulemaking
                using any of the following methods:
                 Agency website: https://www.fdic.gov/regulations/laws/federal/. Follow the instructions for submitting comments on the agency
                website.
                 Email: [email protected]. Include RIN 3064-AF02 on the
                subject line of the message.
                 Mail: Robert E. Feldman, Executive Secretary, Attention:
                Comments, Federal Deposit Insurance Corporation, 550 17th Street NW,
                Washington, DC 20429.
                 Hand Delivery: Comments may be hand delivered to the guard
                station at the rear of the 550 17th Street NW building (located on F
                Street) on business days between 7 a.m. and 5 p.m.
                 Federal eRulemaking Portal: http://www.regulations.gov.
                Follow the instructions for submitting comments.
                 Public Inspection: All comments received, including any
                personal information provided, will be posted generally without change
                to https://www.fdic.gov/regulations/laws/federal. Paper copies of
                public comments may be ordered from the FDIC Public Information Center,
                3501 North Fairfax Drive, Room E-1002, Arlington, VA 22226, or by
                telephone at (877) 275-3342 or (703) 562-2200.
                FOR FURTHER INFORMATION CONTACT: Legal Division: Vivek V. Khare,
                Counsel, (202) 898-6847, [email protected]; Thomas Hearn, Counsel, (202)
                898-6967, [email protected]; Division of Risk Management Supervision:
                Thomas F. Lyons, Chief, Policy and Program Development, (202) 898-6850,
                [email protected]; Judy Gross, Senior Policy Analyst, (202) 898-7047,
                [email protected].
                SUPPLEMENTARY INFORMATION:
                Policy Objectives
                 On December 18, 2018, the FDIC Board adopted an advance notice of
                proposed rulemaking (ANPR) to obtain input from the public on its
                brokered deposit and interest rate regulations in light of significant
                changes in technology, business models, the economic environment, and
                products
                [[Page 46471]]
                since the regulations were adopted.\1\ As described in the ANPR,
                interest rates have been rising, however the national rate that is used
                to calculate rate caps applicable to less than well capitalized banks
                has stayed low because of market dynamics, including the introduction
                of new deposit products and features. In an effort to ensure that the
                national rate cap is reflective of the prevailing rates offered by
                institutions, the FDIC sought comment on all aspects of its regulatory
                approach relating to the interest rate restrictions, and specifically
                asked for comment on potential changes to the methodology used to
                calculate the national rate. The policy objective of this NPR is to
                seek comment on a proposal that attempts to ensure that deposit
                interest rate caps appropriately reflect the prevailing deposit
                interest rate environment, while continuing to ensure that less than
                well capitalized institutions do not solicit deposits by offering
                interest rates that significantly exceed prevailing rates on comparable
                deposit products. The FDIC anticipates that another NPR that addresses
                policy issues related to brokered deposits more generally will be
                issued at a later date.
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                 \1\ The ANPR was published for comment in the Federal Register
                on February 6, 2019. (84 FR 2366)
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                I. Background
                 Section 224 of the Financial Institutions Reform, Recovery, and
                Enforcement Act of 1989 (FIRREA) added section 29 to the Federal
                Deposit Insurance (FDI) Act titled ``Brokered Deposits.'' The law
                originally restricted ``troubled'' insured depository institutions
                without a waiver from (1) accepting deposits from a deposit broker and
                (2) soliciting deposits by offering rates of interest on deposits that
                are significantly higher than the prevailing rates of interest on
                deposits offered by other insured depository institutions
                (``institutions'' or ``banks'') having the same type of charter in such
                depository institution's normal market area.\2\ Section 29 defined a
                ``troubled institution'' as an undercapitalized institution. Congress
                took further action two years later by enacting the Federal Deposit
                Insurance Corporation Improvement Act of 1991 (FDICIA). As part of
                FDICIA, Congress made several amendments to align section 29 of the FDI
                Act with the prompt corrective action (PCA) framework.\3\ One of these
                amendments broadened the applicability of section 29 from ``troubled
                institutions'' (i.e., undercapitalized banks) to any insured depository
                institution that is not well capitalized.
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                 \2\ Public Law 101-73, August 9, 1989, 103 Stat. 183.
                 \3\ The PCA capital thresholds are: (1) Well capitalized; (2)
                adequately capitalized; (3) undercapitalized; (4) significantly
                undercapitalized; and (5) critically undercapitalized.
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                Statutory Provisions Related to the Interest Rate Restrictions
                 Under section 29, well capitalized institutions are not restricted
                in paying any rate of interest on any deposit. However, the statute
                imposes interest rate restrictions on categories of insured depository
                institutions that are less than well capitalized. These categories are
                (1) adequately capitalized institutions with waivers to accept brokered
                deposits (including reciprocal deposits excluded from being considered
                brokered deposits); \4\ (2) adequately capitalized institutions without
                waivers to accept brokered deposits; \5\ and (3) undercapitalized
                institutions.\6\ The statutory restrictions for each category are
                described in detail below.
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                 \4\ 12 U.S.C. 1831f(e).
                 \5\ 12 U.S.C. 1831f(g)(3).
                 \6\ 12 U.S.C. 1831f(h).
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                 Adequately capitalized institutions with waivers to accept brokered
                deposits. Institutions in this category may not pay a rate of interest
                on deposits that ``significantly exceeds'' the following: ``(1) The
                rate paid on deposits of similar maturity in such institution's normal
                market area for deposits accepted in the institution's normal market
                area; or (2) the national rate paid on deposits of comparable maturity,
                as established by the [FDIC], for deposits accepted outside the
                institution's normal market area.'' \7\
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                 \7\ 12 U.S.C. 1831f(e).
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                 Adequately capitalized institutions without waivers to accept
                brokered deposits. In this category, institutions may not offer rates
                that ``are significantly higher than the prevailing rates of interest
                on deposits offered by other insured depository institutions in such
                depository institution's normal market area.'' \8\ For institutions in
                this category, the statute restricts interest rates in an indirect
                manner. Rather than simply setting forth an interest rate restriction
                for adequately capitalized institutions without a waiver to accept
                brokered deposits, the statute defines the term ``deposit broker'' to
                include ``any insured depository institution that is not well
                capitalized . . . which engages, directly or indirectly, in the
                solicitation of deposits by offering rates of interest which are
                significantly higher than the prevailing rates of interest on deposits
                offered by other insured depository institutions in such depository
                institution's normal market area.'' \9\ In other words, the depository
                institution itself is a ``deposit broker'' if it offers rates
                significantly higher than the prevailing rates in its own ``normal
                market area.'' Without a waiver, the institution cannot accept deposits
                from a ``deposit broker.'' Thus, the institution cannot accept these
                deposits from itself. In this indirect manner, the statute prohibits
                institutions in this category from offering rates significantly higher
                than the prevailing rates in the institution's ``normal market area.''
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                 \8\ 12 U.S.C. 1831f(g)(3).
                 \9\ Id.
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                 Undercapitalized institutions. In this category, institutions may
                not solicit deposits by offering rates ``that are significantly higher
                than the prevailing rates of interest on insured deposits (1) in such
                institution's normal market area; or (2) in the market area in which
                such deposits would otherwise be accepted.'' \10\
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                 \10\ 12 U.S.C. 1831f(h).
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                II. Regulatory Approach
                 The FDIC has implemented the statutory interest rate restrictions
                through two rulemakings.\11\ While the statutory provisions noted above
                set forth a basic framework based upon capital categories, they do not
                provide certain key details, such as definitions of the terms
                ``significantly exceeds,'' ``significantly higher,'' ``market,'' and
                ``national rate.'' As a result, the FDIC defined these key terms via
                rulemaking in 1992. Both the ``national rate'' calculation and the
                application of the interest rate restrictions were updated in a 2009
                rulemaking.
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                 \11\ 57 FR 23933 (1992); 74 FR 26516 (2009).
                 \12\ The FDIC has not viewed the slight verbal variations in
                these provisions as reflecting a legislative intent that they have
                different meaning and so the agency has, through rulemaking,
                construed the same meaning for these two phrases.
                 \13\ 12 CFR 337.6(b)(2)(ii), (b)(3)(ii) and (b)(4). The FDIC
                first defined ``significantly higher'' as 50 basis points. 55 FR
                39135 (1990). As part of the 1992 rulemaking, commenters suggested
                that the FDIC define ``significantly higher'' as 100 basis points.
                In response, the FDIC defined ``significantly higher'' as 75 basis
                points.
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                 ``Significantly Exceeds'' or ``Significantly Higher.'' \12\ Through
                both the 1992 and the 2009 rulemakings, the FDIC has interpreted that a
                rate of interest ``significantly exceeds'' another rate, or is
                ``significantly higher'' than another rate, if the first rate exceeds
                the second rate by more than 75 basis points.\13\ In adopting this
                standard in 1992, and subsequently retaining it in 2009, the FDIC
                offered the following explanation: ``Based upon the FDIC's experience
                with the brokered deposit prohibitions to date, it is believed that
                this number will allow insured depository institutions subject to the
                [[Page 46472]]
                interest rate ceilings . . . to compete for funds within markets, and
                yet constrain their ability to attract funds by paying rates
                significantly higher than prevailing rates.'' \14\
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                 \14\ 57 FR 23933, 23939 (1992); 74 FR 26516, 26520 (2009).
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                 ``Market.'' In the FDIC's regulations, as implemented through both
                the 1992 and 2009 rulemaking, the term ``market'' is ``any readily
                defined geographical area in which the rates offered by any one insured
                depository institution soliciting deposits in that area may affect the
                rates offered by other insured depository institutions in the same
                area.'' \15\ The FDIC determines an institution's market area on a
                case-by-case basis.\16\
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                 \15\ 57 FR 23933 (1992) and 74 FR 26516 (2009).
                 \16\ 12 CFR 337.6(f).
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                 The ``National Rate.'' As part of the 1992 rulemaking, the
                ``national rate'' was defined as follows: ``(1) 120 percent of the
                current yield on similar maturity U.S. Treasury obligations; or (2) In
                the case of any deposit at least half of which is uninsured, 130
                percent of such applicable yield.'' In defining the ``national rate''
                in this manner, the FDIC understood that the spread between Treasury
                securities and depository institution deposits can fluctuate
                substantially over time but relied upon the fact that such a definition
                is ``objective and simple to administer.'' \17\ By using percentages
                (120 percent, or 130 percent for wholesale deposits, of the yield on
                U.S. Treasury obligations) instead of a fixed number of basis points,
                the FDIC hoped to ``allow for greater flexibility should the spread to
                Treasury securities widen in a rising interest rate environment.''
                Additionally, at the time of the 1992 rulemaking, the FDIC did not have
                readily available data on actual deposit rates paid and used Treasury
                rates as a proxy.
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                 \17\ 57 FR 23933, 23938 (June 5, 1992).
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                 Prior to the 2009 rulemaking, yields on Treasury securities began
                to plummet, driven by global economic uncertainties, which resulted in
                a ``national rate'' that was lower than deposit rates offered by many
                institutions. As part of the 2009 rulemaking, with the benefit of
                having data on offered rates available on a substantially real-time
                basis, the FDIC redefined the ``national rate'' as ``a simple average
                of rates paid by all insured depository institutions and branches for
                which data are available.'' \18\ At that time, the FDIC noted that the
                ``national rate'' methodology represents an objective average of rates
                paid by all reporting insured depository institutions for particular
                products.
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                 \18\ 74 FR 26516 (2009).
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                The ``Prevailing Rate''
                 The FDIC has recognized, as part of its regulation on interest rate
                restrictions, that competition for deposit pricing has become
                increasingly national in scope. Therefore, through the 2009 rulemaking,
                the FDIC presumes that the prevailing rate in an institution's market
                areas is the FDIC-defined national rate.\19\
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                 \19\ 74 FR 26516 at 26519 (2009).
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                Application of the Interest Rate Restrictions
                 A bank that is not well capitalized generally may not offer deposit
                rates more than 75 basis points above the national rate for deposits of
                similar size and maturity.\20\
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                 \20\ 12 CFR 337.6(b)(2)(ii)(B). Well capitalized banks are not
                subject to the interest rate restrictions in Sec. 337.6. However, a
                quantitatively ``well capitalized'' bank subject to a written
                agreement, order to cease and desist, capital directive, or prompt
                corrective action directive which includes a capital maintenance
                provision, is reclassified as adequately capitalized for Sec. 337.6
                purposes.
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                 As noted above, the national rate is defined as a simple average of
                rates paid by all insured depository institutions and branches that
                offer and publish rates for specific products. These products include
                non-jumbo and jumbo CDs of various maturities, as well as savings,
                checking and money market deposit accounts (MMDAs).\21\ The FDIC
                receives interest rate data on various deposit products from a private
                data aggregator on a weekly basis. The data aggregator computes the
                simple averages for the various deposit products as well as the
                corresponding national rate cap by adding 75 basis points to each
                simple average. The FDIC then publishes on a weekly basis the national
                rate simple averages and corresponding national rate caps on its
                website.\22\
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                 \21\ Jumbo accounts are accounts with deposits greater or equal
                to $100,000.
                 \22\ Available at: https://www.fdic.gov/regulations/resources/rates/.
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                 If the posted national rates differ from the actual rates in a
                bank's local market area, the bank may present evidence to the FDIC
                that the prevailing rate in a particular market is higher than the
                national rate.\23\ If the FDIC agrees with this evidence,\24\ the
                institution would be permitted to pay as much as 75 basis points above
                the local prevailing rate for deposits solicited in its local market
                areas. For deposits that are solicited on the internet or otherwise
                outside its local market, the institution would have to offer rates
                that do not exceed the national rate cap. In evaluating this evidence,
                the FDIC may use segmented market rate information (for example,
                evidence by State, county or metropolitan statistical area). Also, the
                FDIC may consider evidence as to the rates offered by credit unions but
                only if the insured depository institution competes directly with the
                credit unions in the particular market.
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                 \23\ 12 CFR 337.6(f).
                 \24\ The procedures for seeking such a determination are set
                forth in FIL-69-2009 (December 4, 2009). As explained in the FIL, an
                insured depository institution can request a local rate
                determination by sending a letter to the applicable FDIC regional
                office. The institution should specify its market area(s). After
                receiving the request, the FDIC will make a determination as to
                whether the bank's market area is a high-rate area. If the FDIC
                agrees that the bank is operating in a high-rate area, the bank
                would need to calculate and retain evidence of the prevailing rates
                for specific deposits in its local market area. The question and
                answer attachment was revised in November 1, 2011.
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                III. Need for Further Rulemaking
                 The current interest rate cap regulations became effective in 2010
                and were adopted to modify the previous national rate cap (based on
                U.S. Treasury securities) that had become overly restrictive. Chart 1
                below reflects the current national rate cap and the average of the top
                ten rates paid for a 12-month CD between 2010 and the present.\25\
                Chart 1 illustrates that between 2010 and approximately the second
                quarter of 2015, rates on deposits were quite low, even for the top
                rate payers. The current regulation's methodology for calculating the
                national rate, to which 75 basis points is added to arrive at the
                national rate cap, resulted in a national rate cap that allowed less
                than well capitalized institutions to easily compete with even the
                highest rates paid on the 12-month CD.
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                 \25\ The average of the top ten rates paid for 12 month CDs is
                meant to illustrate a competitive offering rate for wholesale
                insured deposits and show the general direction of the movement of
                the market for deposit rates.
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                [[Page 46473]]
                [GRAPHIC] [TIFF OMITTED] TP04SE19.001
                 Since July 2015, however, market conditions have changed so the
                current national rate methodology results in a national rate for the
                12-month CD that, when 75 basis points are added, produces a national
                rate cap that has remained relatively unchanged and could restrict less
                than well capitalized institutions from competing for market-rate
                funding. Market conditions have caused similar changes in the rates of
                other deposit products compared to the applicable rate cap, although
                the timing of when such changes occurred varied from product to
                product. Interest rates have been relatively low since the financial
                crisis that began in 2007. Towards the end of 2015, however, some banks
                began to increase rates paid on deposits as the Federal Reserve
                increased its federal funds rate targets. During this time, and up to
                the present day, the largest banks have been, on average, slower to
                raise interest rates on deposits (as published). This has held down the
                simple average of rates offered across all branches. Additionally,
                institutions, including the largest banks, have recently been offering
                more deposit products with special features, such as rewards checking,
                higher rates on odd-term maturities, negotiated rates, and cash
                bonuses, that are not included in the calculation of the posted
                national rate.
                 Because of these developments, the majority of the institutions
                subject to the interest rate caps have been granted approval to use the
                local rate cap for deposits obtained locally. The national rate cap,
                however, remains applicable to deposits that these institutions
                obtained from outside their respective normal market area, including
                through the internet.
                 Setting the national rate cap at a too low of a level could
                prohibit less than well capitalized banks from competing for deposits
                and create an unintentional liquidity strain on those banks competing
                in national markets. For example, a national rate cap that is too low
                could destabilize a less than well capitalized bank just as it is
                working on improving its financial condition. Preventing such
                institutions from being competitive for deposits, when they are most in
                need of predictable liquidity, can create severe funding problems.
                Additionally, a rate cap that is too low may be inconsistent with the
                statutory requirement that a firm is prohibited from offering a rate
                that ``significantly exceeds'' or is ``significantly higher'' than the
                prevailing rate. This could unnecessarily harm the institution and its
                customers, especially when liquidity planning is essential for safety
                and soundness. At the same time, however, the statute imposes interest
                rate restrictions on weak institutions. It has been the FDIC's
                experience that while some banks recover from problems, others use
                high-rate funding and other available funds, not to recover, but to
                delay insolvency--a strategy that could lead to increased losses for
                the deposit insurance fund.\26\
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                 \26\ See e.g., OIG Failed Bank Review for Proficio Bank,
                February 2018, FBR-18-001, (https://www.fdicoig.gov/sites/default/files/publications/FBR-18-001.pdf).
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                 Consequently, the FDIC is proposing to modify its regulations to
                provide a more balanced, reflective, and dynamic national and local
                rate cap that will ensure that less than well capitalized institutions
                have the flexibility to access market-rate funding, yet prevent them
                [[Page 46474]]
                from offering a rate that significantly exceeds the prevailing rate for
                a particular product, in accordance with Section 29.
                Issues Raised by Commenters
                 In response to the ANPR on brokered deposits and interest rate
                restrictions, the FDIC received over 130 comments from individuals,
                banking organizations, non-profits, as well as industry and trade
                groups, representing banks, insurance companies, and the broader
                financial services industry. Of the total comments, 59 related to the
                FDIC's rules on the interest rate restrictions.
                 The majority of these commenters expressed concerns about the
                current national rate calculation and raised the same issues
                highlighted by the FDIC as part of the ANPR. Most commenters were of
                the view that the current national rate cap is too low. One reason
                cited by commenters was that the largest banks with the most branches
                have a disproportional effect on the national rate. These institutions
                have been slow to increase published rates even as interest rates
                offered by community banks and online-focused banks have begun to rise
                significantly in comparison. Many of these commenters suggested that
                this skewing effect is compounded by minimizing the significance of
                online-focused banks, which have few or no branches but tend to pay the
                highest rates. Commenters also noted that the national rate is low
                because published rates (1) tend to be lower than the actual interest
                paid on deposits after negotiation and (2) may not accurately reflect
                certain promotional or cash bonus products.
                 Some commenters stated that because of technological advances
                (e.g., internet and smartphones) any depositor can shop nationwide for
                the best yield, so all institutions compete in the national market. As
                a result of this new way to access deposits, along with the variety of
                available deposit products, commenters suggested that no single formula
                or set of formulas would be able to accurately define the prevailing
                rate in an institution's normal market area, although commenters
                expressed a desire for a more dynamic approach. One commenter stated
                that there will always be constant evolution in the types of interest
                paid to depositors, and new entrants will continue to develop different
                products.
                 A number of commenters stated that the interest rate restrictions
                are penalizing less than well capitalized institutions and increase the
                likelihood of a liquidity failure because such institutions would be at
                a competitive disadvantage in raising deposit funding at the current
                rate caps.
                 Several commenters also raised concerns over examiners' use of the
                national rate cap as a proxy for ``high risk'' deposits for well
                capitalized banks. The FDIC has responded to these concerns by revising
                its Risk Management Supervision Manual of Examination Policies and
                clarifying to examiners that rate caps apply only to institutions that
                are less than well capitalized.\27\
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                 \27\ https://www.fdic.gov/regulations/safety/manual/section6-1.pdf. For safe and sound operation, it is important for the
                management of any institution to assess and monitor the
                characteristics of its entire funding base, to understanding of the
                stability of all funding sources, and to identify potential funding
                shortfalls and sources that in a stress event may become unavailable
                or cost prohibitive. The FDIC is evaluating whether any further
                changes to the Manual are warranted.
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                 One commenter believed that it would be inconsistent with
                Congressional intent for the FDIC to take action to modify interest
                rate restrictions in a manner that would allow less than well
                capitalized banks to accept high-rate deposits.
                Recommendations Provided by Commenters
                 Many commenters provided recommendations for changing the national
                rate and national rate cap methodology. Commenters suggested the
                following changes:
                 The national rate calculation should include all
                comparable deposit rates, including, for example, promotional CD
                products (e.g., ``off-tenor'' terms), specials offered (e.g., cash
                incentives), rewards checking products, and products that are available
                only in the online marketplace.
                 The national rate calculation should include one entry per
                bank charter rather than the current approach that calculates the
                simple average of published rates by all branches.
                 The national rate should be based on fixed income
                instruments such as U.S. Treasury yields or the Federal Home Loan Bank
                advance rate. Some of these commenters suggested that the current
                national rate cap should allow institutions to choose between the
                higher of the national rate cap set in the 1992 and the 2009
                rulemaking. This would allow less than well capitalized institutions to
                offer rates at the higher of (1) 120, or 130 percent for wholesale
                deposits, of the U.S. Treasury yields plus 75 basis points and (2) the
                current national rate cap (simple average of all branches plus 75 basis
                points).
                 The national rate calculation should be based on an
                average of the top listing service rates.
                 Community banks should be able to use a more tailored
                local market rate that includes online rates, specials, and promotional
                rates.
                 Additionally, other commenters asserted that the interest rate
                restrictions should be eliminated and replaced with growth restrictions
                on banks that are undercapitalized or have serious asset quality
                issues.
                 In response to the issues raised by commenters, the FDIC seeks
                public comments on a proposal to amend the interest rate caps. The
                purpose of the proposed rule would be to ensure that the rate caps are
                more dynamic in that they remain reflective of the prevailing rates
                offered through all stages of the economic and interest rate cycles.
                Additionally, the proposed rule is intended to allow less than well
                capitalized insured depository institutions subject to the interest
                rate caps to reasonably compete for funds within markets, and yet, in
                accordance with Section 29, constrain them from offering a rate that
                significantly exceeds the prevailing rate for a particular product.
                IV. Proposed Rule
                 The proposal would amend the national rate and both the national
                rate cap and the local rate cap. The proposal would also provide a new
                simplified process for institutions that seek to offer a local market
                rate that exceeds the national rate cap.
                National Rate
                 The proposed national rate would be the weighted average of rates
                paid by all insured depository institutions on a given deposit product,
                for which data are available, where the weights are the institution's
                market share of domestic deposits. Through this proposal, the FDIC
                would continue to interpret the ``prevailing rates of interest . . . in
                an institution's normal market area'' to be the national rate, as
                defined by regulation. The key difference between the proposed national
                rate and the current national rate is that the calculation of the
                proposed national rate would be a weighted average based on an
                institution's share of total domestic deposits, while the current
                methodology is based on an institution's number of branches.
                 In determining the proposed national rate, the FDIC would calculate
                an average rate per institution for each specific deposit product that
                the institution offers, and for which data is available, including CDs
                of various tenors, as well as savings accounts, checking accounts and
                MMDAs. The national rate for a specific deposit
                [[Page 46475]]
                product would then be calculated by multiplying each bank's rate by its
                amount of domestic deposits, summing these values, and dividing by the
                total amount of domestic deposits held by such institutions. Table 1
                below presents data for a hypothetical deposit product. The national
                rate for this hypothetical deposit product would be 1.56 percent, the
                average of the rates offered by these banks, weighted by domestic
                deposits. Chart 2 compares the national rate under the current
                methodology weighted by branches to the proposed methodology weighted
                by deposits.
                 Calculation of the average using the weighted methodology:
                 [GRAPHIC] [TIFF OMITTED] TP04SE19.002
                
                 Table 1
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                 Share of
                 Bank Total industry Rate (%)
                 deposits deposits (%)
                ----------------------------------------------------------------------------------------------------------------
                Bank A.......................................................... 4,000 2.00 2.30
                Bank B.......................................................... 3,000 1.50 2.25
                Bank C.......................................................... 21,000 10.50 2.15
                Bank D.......................................................... 4,000 2.00 2.05
                Bank E.......................................................... 23,000 11.50 2.00
                Bank F.......................................................... 12,000 6.00 1.99
                Bank G.......................................................... 6,000 3.00 1.75
                Bank H.......................................................... 76,000 38.00 1.45
                Bank I.......................................................... 32,000 16.00 1.40
                Bank J.......................................................... 3,000 1.50 1.00
                Bank K.......................................................... 9,000 4.50 0.45
                Bank L.......................................................... 2,000 1.00 0.25
                Bank M.......................................................... 5,000 2.50 0.15
                 -----------------------------------------------
                 Total....................................................... 200,000 100.00 N/A
                ----------------------------------------------------------------------------------------------------------------
                [[Page 46476]]
                [GRAPHIC] [TIFF OMITTED] TP04SE19.003
                National Rate Cap
                 The proposal would interpret that a rate of interest
                ``significantly exceeds'' the prevailing rate, or is ``significantly
                higher'' than the prevailing rate, if the rate of interest exceeds the
                national rate cap. The national rate cap would be set to the higher of
                (1) the rate offered at the 95th percentile of rates weighted by
                domestic deposit share or (2) the proposed national rate plus 75 basis
                points. The FDIC would compute the permissible national rate cap
                applicable for different deposit products and maturities on a monthly
                basis, and would plan to publish such information on the FDIC's website
                on a monthly basis.\28\
                ---------------------------------------------------------------------------
                 \28\ FDIC would retain discretion to publish more or less
                frequently, if needed.
                ---------------------------------------------------------------------------
                 Rates offered at the 95th Percentile. Through this proposal, one
                method for the national rate cap would be the rate offered at the 95th
                percentile of rates weighted by domestic deposit share. By definition,
                the rates that exceed this component of the national cap would be part
                of the top 5 percent of rates offered, weighted by domestic deposit
                share. In other words, setting the threshold at the 95th percentile
                would allow institutions subject to the interest rate restrictions to
                compete with all but the top five percent of offered rates, weighted by
                domestic deposit share. This standard is intended to set a reasonable
                proxy for rates that ``significantly exceed'' the prevailing rate in
                that the rate would allow less than well capitalized institutions to
                access market-rate funding. At the same time, it would constrain them
                from being at the very top of the market.
                 To determine the rate being offered at the 95th percentile, the
                FDIC would calculate an average rate per institution for each specific
                deposit product that the institution offers, and for which data is
                available, including CDs of various tenors, as well as savings,
                checking and MMDAs. These rates would be sorted by rate offered on the
                given deposit product from highest to lowest. An institution's
                percentile would be determined by taking the sums of the amounts of
                domestic deposits held by the institution and by all the institutions
                offering a lower rate, dividing that value by the total domestic
                deposits held by all institutions for which data is available. The rate
                offered by the bank whose percentile was the first at or above the 95th
                percentile would be the rate at the 95th percentile.
                 In Table 2 below, Bank C is the first institution offering a rate
                at or above the 95th percentile. Therefore, Bank C's rate of 2.15
                percent would be the national rate cap for this hypothetical deposit
                product under the 95th percentile method.
                [GRAPHIC] [TIFF OMITTED] TP04SE19.004
                [[Page 46477]]
                 Table 2
                ----------------------------------------------------------------------------------------------------------------
                 Share of
                 Bank Total industry Cummulative Percentile Rate (%)
                 deposits deposits (%) deposits (%)
                ----------------------------------------------------------------------------------------------------------------
                Bank A.......................... 4,000 2.00 200,000 100.0 2.30
                Bank B.......................... 3,000 1.5 196,000 98.0 2.25
                Bank C.......................... 21,000 10.5 193,000 96.5 2.15
                Bank D.......................... 4,000 2.0 172,000 86.0 2.05
                Bank E.......................... 23,000 11.5 168,000 84.0 2.00
                Bank F.......................... 12,000 6.0 145,000 72.5 1.99
                Bank G.......................... 6,000 3.0 133,000 66.5 1.75
                Bank H.......................... 76,000 38.0 127,000 63.5 1.45
                Bank I.......................... 32,000 16.0 51,000 25.5 1.40
                Bank J.......................... 3,000 1.5 19,000 9.5 1.00
                Bank K.......................... 9,000 4.5 16,000 8.0 0.45
                Bank L.......................... 2,000 1.0 7,000 3.5 0.25
                Bank M.......................... 5,000 2.5 5,000 2.5 0.15
                ----------------------------------------------------------------------------------------------------------------
                 National Rate Plus 75 Basis Points. Through this proposal, the
                second method for the national rate cap methodology would be the
                proposed national rate plus 75 basis points. This method for the
                national rate cap would build upon the long-standing application that
                an amount that is 75 basis points above the average rates offered on a
                particular product is an appropriate proxy for a rate that
                ``significantly exceeds'' or is ``significantly higher'' than the
                prevailing rate. The 75 basis point add-on to this national rate cap
                would also provide needed flexibility during low-rate environments, or
                when the rate paid at the 95th percentile is low due to a convergence
                of rates being offered by banks with relatively large deposit shares
                for particular products. In such cases, the 95th percentile may not
                represent a rate that ``significantly exceeds'' or is ``significantly
                higher'' than the prevailing rate for particular deposit products.
                Proposed Methodology
                 Weighting the national rate and the national rate cap by domestic
                deposits is more representative of the amount of deposits placed at
                offered rates than weighting by branches (which is a feature of the
                current method), particularly for internet-only banks that have a large
                share of deposits but few branches and tend to pay higher rates.
                Moreover, the use of percentiles decreases the effects of institutions
                that may be viewed as pushing down the average by offering very low
                published rates, but at the same time may offer special features, such
                as cash bonuses or negotiated rates, that result in an effective higher
                interest expense paid to depositors than is reflected in the published
                rates.
                 Additionally, utilizing a percentile methodology would improve the
                current national rate cap by providing a more dynamic calculation. This
                is because the distribution of rates offered often reflects a large
                mass of rates at the low end of the market and fewer rates offered at
                the high end of the market. As many commenters noted, this distribution
                has caused the current national rate caps (calculated using a simple
                average) to remain low even as more institutions begin to pay higher
                rates. Because one component of the proposed national rate cap would be
                based on rates paid at the 95th percentile, the effect of having a
                large mass of rates at the low end of the market would not be as
                pronounced.
                 There are, however, potential data limitations with this proposed
                methodology. 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 national rate caps. If a
                rate offered by an institution that has a sizeable market share of
                total domestic deposits is not included in the data sources, then the
                national rate cap may not be truly reflective of the market. In
                addition, if the data is not consistently reported or captured, the
                national rate cap could be subject to fluctuations from month to month
                due to the methodology's use of weighting. To ensure that all reported
                rates are incorporated in the national rate cap, the FDIC would review
                the data it receives to ensure that all rate information that has been
                provided is incorporated \29\ before making the national rate cap
                available on the FDIC's website.
                ---------------------------------------------------------------------------
                 \29\ To the extent possible, staff plans to review the data for
                omissions that may have a significant impact on the national rate
                and national rate cap.
                ---------------------------------------------------------------------------
                 There may also be other factors (e.g., geopolitical changes,
                changes to the federal funds rate) that could have an impact on the
                rates being offered and may cause fluctuations in the national rate
                cap, given the proposed weighting by deposit share. Moreover, it is
                possible that one institution, or a few institutions, with a large
                deposit share could affect the national rate cap by withdrawing a
                product from the market or by introducing a product into the market.
                While such fluctuations, caused by factors other than data limitations,
                would be reflective of changes in the market, these changes could cause
                downward volatility in the national rate cap. In order to address the
                effect of this potential downward volatility, the FDIC proposes that,
                for institutions that are subject to the interest rate restrictions,
                any subsequent published national rate cap, that is lower than the
                previously published national rate cap, take effect 3 days after
                publication. The previously posted national rate cap would remain in
                effect during this 3-day period. Furthermore, in the event of a
                substantial unexpected decrease in the national rate cap, the FDIC
                would have the discretion to delay the date on which that national rate
                cap takes effect. Until the subsequent national rate cap takes effect,
                the previously published national rate cap would remain in effect.
                 Table 3 below compares the current and proposed national rate cap
                based upon the various deposit maturities using data from May 20,
                2019,\30\ and provides the applicable rate cap that is based upon the
                higher of the two proposed national rate caps.
                ---------------------------------------------------------------------------
                 \30\ Historical data are only available through the end of May
                2019.
                [[Page 46478]]
                 Table 3--Comparison of the Current National Rate Cap and the Proposed
                 National Rate Cap for Various Deposit Products (as of May 20, 2019)
                ------------------------------------------------------------------------
                 Current national Proposed national
                 Deposit products rate cap rate cap
                ------------------------------------------------------------------------
                Interest Checking................. 0.81 0.80*
                Savings........................... 0.84 1.05
                MMDA.............................. 0.93 1.20
                1 month CD........................ 0.87 0.85*
                3 month CD........................ 0.97 0.94*
                6 month CD........................ 1.16 1.21
                12 month CD....................... 1.40 2.70
                24 month CD....................... 1.59 2.65
                36 month CD....................... 1.72 2.75
                48 month CD....................... 1.82 2.80
                60 month CD....................... 1.98 3.00
                ------------------------------------------------------------------------
                * For these products, the Proposed Rate Cap as of May 20, 2019, would be
                 based on the weighted mean plus 75 basis points methodology as of
                 March 2019.
                Source: FDIC and RateWatch.
                 As part of this proposal, the FDIC would continue to publish the
                national rate cap for the on-tenor maturities noted above in Table
                3.\31\ If an institution seeks to offer a product with an off-tenor
                maturity for which a rate is not published by the FDIC, then the
                institution would be required to use the rate offered on the next
                lowest on-tenor maturity for that product as the applicable national
                rate cap. For example, an institution seeking to offer a 26-month CD
                product must use the rate offered for the 24-month CD product as the
                institution's national rate cap.
                ---------------------------------------------------------------------------
                 \31\ On-tenor maturities include the following term periods: 1-
                month, 3-month, 6-month, 12-month, 24-month, 36-month, 48-month, and
                60-month. All other term periods are considered off-tenor maturities
                for purposes of the interest rate restrictions.
                ---------------------------------------------------------------------------
                 Historical Data. In determining the appropriateness of the proposed
                methodology for the national rate and national rate cap, the FDIC
                reviewed and considered the proposed national rate cap's progression
                over time relative to the current and previous rate caps and top rates
                from a listing service. Appendix 1 of this document provides charts
                with historical data for the various maturities. The charts illustrate
                that the proposed national rate cap set to the rate offered at the 95th
                percentile would be more reactive to and reflective of the fluctuations
                in the interest rate market than the current national rate cap for many
                of the maturities, particularly those with tenors of 6 months or more
                and MMDAs. To the extent that the rate offered at the 95th percentile
                is flat, and does not react to the top payers due to a convergence of
                rates among the banks with the largest deposit shares for particular
                deposit products (as currently seen with the interest checking product
                and the one and three month CDs), then the national rate plus 75 basis
                points would provide flexibility for institutions to remain
                competitive, while still satisfying the statutory interest rate
                restrictions applicable to less than well capitalized institutions.
                Local Rate Cap
                 Since the 2009 rulemaking, competition for deposits among insured
                depository institutions continues to grow increasingly digital and
                therefore national in scope. Today, a consumer in any market, including
                rural markets, can access rates and shop for deposit products by
                checking a variety of websites. In light of this evolution, the
                proposal would continue to presume that the national rate cap applies
                to rates offered on all deposits by less than well capitalized
                institutions. However, because the FDIC's experience suggests some
                institutions still do compete for particular products within their
                local market areas, the proposal would continue to provide a local rate
                cap process.
                 Specifically, the proposal would allow less than well capitalized
                institutions to provide evidence that any bank and credit union in its
                local market offers a rate on particular deposit product in excess of
                the national rate cap. If sufficient evidence is provided, then the
                less than well capitalized institution would be allowed to offer 90
                percent of the competing institution's rate on the particular product.
                This would replace the current methodology that requires the local rate
                cap to be the average of the rates offered by all competing
                institutions, which can include credit unions, for a particular product
                plus 75 basis points.
                 As part of this proposal, the FDIC would define an institution's
                market area as any readily defined geographical area, which may include
                the State, county or metropolitan statistical area, in which the
                insured depository institution solicits depositors by offering rates on
                a particular deposit product. Less than well capitalized institutions
                that solicit deposit products outside of their local market area, such
                as online listing services, would not be allowed to offer rates on
                those nationally-sourced deposit products in excess of the national
                rate cap, and therefore would not be eligible for a local rate cap
                determination for those products.
                 An institution's local market rate cap would be based upon the rate
                offered on a particular deposit product type and maturity period by an
                insured depository institution or credit union that is accepting
                deposits at a physical location within the institution's local market
                area. If a less than well capitalized institution seeks to offer a
                product with an off-tenor maturity that is not offered by competing
                institutions within its local market area, then the institution would
                use the rate offered on the next lowest on-tenor maturity for that
                product when determining its local market rate cap. For example, a less
                than well capitalized institution seeking to offer a 26-month CD
                product would use the rate offered for a competitor's 26-month product.
                In this way, an institution would be able to take into consideration
                rates offered on off-tenor
                [[Page 46479]]
                maturity products in calculating a local rate cap. If a 26-month
                product was not being offered by a competitor, then the institution
                would use the rate offered on a 24-month CD product to calculate the
                institution's local market rate cap.
                 A less than well capitalized institution would not be permitted to
                calculate its local rate cap based on rates that are tied to a deposit
                balance. For example, if a competing institution offers different
                interest rates for different deposit balances for the same deposit
                maturity, the institution may not pick the highest rate from the
                competing institution's rates. The less than well capitalized
                institution should average the competing institution's interest rates
                for each size deposit within each maturity period.\32\ In addition, a
                less than well capitalized institution would be permitted to use
                published rates only, rather than adjusting a competing institution's
                rates to reflect special features, such as cash incentives being
                offered by that competing institution, when calculating its local
                market rate cap.
                ---------------------------------------------------------------------------
                 \32\ For example, a competing institution may offer, on the same
                deposit product, 1 percent interest for a minimum deposit of $10,000
                and 2 percent interest for a minimum deposit of $100,000. In such a
                case, for purposes of the local rate cap, the competing
                institution's interest rate would be 1.5 percent.
                ---------------------------------------------------------------------------
                 Similarly, for time deposits, the FDIC would view lack of limits on
                withdrawals as a special feature. For example, if an institution is
                reviewing a competitor's rates on a CD with a five year stated maturity
                but only a one-month limit on withdrawals (or considering offering such
                a product itself), the FDIC would look to the substance of the product,
                which is more akin to a one-month CD, when considering a less than well
                capitalized institution's request for a local rate determination.
                 The proposal would also eliminate 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 would need to notify its appropriate FDIC regional office
                that it intends to offer a rate that is above the national rate cap and
                provide evidence that it is competing against an institution or credit
                union that is offering a rate in its local market area in excess of the
                national rate cap. As described above, the institution would then be
                allowed to offer 90 percent of the rate offered by a competitor in the
                institution's local market area. The institution would be expected to
                calculate the local rate cap monthly, maintain records of the rate
                calculations for at least two examination cycles and, upon the FDIC's
                request, provide the documentation to the appropriate FDIC regional
                office and to examination staff during any subsequent examinations.
                 The proposal to amend the local rate cap is intended to streamline
                the current local rate cap process and provide additional flexibility
                for less than well capitalized institutions to compete with local
                competition offering rates in excess of the national rate cap. This
                proposal would also address a popular promotional method of attracting
                new maturity deposits by offering higher rates on off-tenor products.
                Treatment of Non-Maturity Deposits for Purposes of the Interest Rate
                Restrictions
                 For purposes of the interest rate restrictions, the FDIC has from
                time to time looked at the question of when non-maturity deposits in an
                existing account are considered ``accepted'' or ``solicited.'' The
                FDIC, through this proposal, is considering an interpretation under
                which non-maturity deposits are viewed as ``accepted'' and
                ``solicited'' for purposes of the interest rate restrictions at the
                time any new non-maturity deposits are placed at an institution.
                 Under this proposed interpretation, balances in a money market
                demand account or other savings account, as well as transaction
                accounts, at the time an institution falls below well capitalized would
                not be subject to the interest rate restrictions. However, if funds
                were deposited to such an account after the institution became less
                than well capitalized, the entire balance of the account would be
                subject to the interest rate restrictions. If, however, the same
                customer deposited funds into a new account and the balance in that
                account was subject to the interest rate restrictions, the balance in
                the initial account would continue to not be subject to the interest
                rate restrictions so long as no additional funds were accepted.
                Interest rate restrictions also generally apply to any new non-maturity
                deposit accounts opened after the institution falls to below well
                capitalized.
                 The term ``accept'' is also used in PCA-triggered restrictions
                related to brokered deposits and employee benefit plan deposits.\33\
                The FDIC plans to address in a future rulemaking when deposits are
                ``accepted'' for purposes of these PCA-related restrictions, both for
                non-maturity deposits, such as transaction accounts and MMDAs, as well
                as for certificates of deposits and other time deposits.
                ---------------------------------------------------------------------------
                 \33\ See 12 U.S.C. 1821(a)(1)(D) and 1831f(a).
                ---------------------------------------------------------------------------
                V. Alternatives
                 Below are alternatives that were considered, and on which the FDIC
                is seeking comment, as part of this proposed rulemaking.
                Higher of Two Previous Rate Caps
                 As an alternative to replacing the 75 basis points as the threshold
                for ``significantly exceeds'' and the current simple average
                methodology for the national rate, the FDIC considered retaining the
                current threshold but modifying it so that, for a particular deposit
                product, the national rate cap would be 75 basis points added to the
                higher of: (1) The current simple average calculation; or (2) the
                methodology used by the FDIC between 1992 and 2009, i.e., 120 percent
                or, 130 percent for wholesale deposits, of the applicable Treasury
                security rate, plus 75 basis points.
                 Several commenters suggested that the FDIC allow institutions to
                pay the higher of the previous national rate cap, which tracks the
                yields on comparable Treasury securities plus 75 basis points, or the
                current national rate cap. Chart 3 below shows the national rate cap
                based on Treasury securities from 1996 through the present. The chart
                also shows the current rate cap from 2009 forward, as well as the
                average of top rates from a listing service from 1996 to the present.
                BILLING CODE 6714-01-P
                [[Page 46480]]
                [GRAPHIC] [TIFF OMITTED] TP04SE19.005
                BILLING CODE 6714-01-C
                 Chart 3 illustrates the difficulties in determining a prevailing
                market rate that accurately reflects the true market value of different
                deposit products in changing economic environments. The method used to
                calculate the previous national rate cap (using U.S. Treasury
                securities) worked well for many years because rates on Treasury
                obligations tracked closely the rates on deposits. In 2008, however,
                the rates on Treasury obligations dropped dramatically because of a
                flight to quality during the financial crisis. Consequently, the yields
                on U.S. Treasuries fell faster than deposit rates and no longer tracked
                the rates available on deposits, thereby prompting the FDIC to change
                the national rate to the current simple average approach. The current
                approach provided institutions much needed relief during the post-
                crisis years up until 2015 when, as described above, rates started
                increasing and the national rate cap lagged behind. At the same time,
                however, because the current methodology was so permissive, it
                effectively made the interest rate restrictions non-constraining for
                less than well capitalized institutions for several years.
                 Today, with the benefit of having data to review the ability of
                previous and current national rate calculations to capture deposit
                market conditions, it is apparent that neither measure works in all
                interest rate environments. Given that the method used to calculate the
                national rate cap tied to U.S. Treasury securities works well under
                certain economic conditions (high-rate or rising-rate environments),
                and the current method of calculating the national rate cap works well
                under other economic conditions (falling-rate environment), the FDIC
                considered setting the national rate cap applicable to less than well
                capitalized institutions at the higher of the previous and current rate
                caps. The FDIC also considered whether the U.S. Treasury securities
                index would warrant a multiplier plus 75 basis points, as previously
                provided.
                 The FDIC believes that this alternative would be simple to
                administer and provide immediate and continuous relief to institutions
                subject to the interest rate restrictions. Using a fixed income product
                such as U.S. Treasury securities would also mitigate potential data
                limitations in determining a national rate based solely upon rates
                reported to third-party sources. However, U.S. Treasury securities are
                not deposit rates and, as indicated by the chart above, do not always
                track deposit rates. Also, U.S. Treasury securities do not have the
                necessary range of maturities that are prevalent with deposit products,
                particularly with the recent popularity of non-maturity deposits.\34\
                Moreover, there are certain rate environments in which neither
                alternative might be expected to yield a rate that ``significantly
                exceeds'' or is ``significantly higher'' than the prevailing rate, such
                as a high rate environment in which Treasury yields dropped
                precipitously while deposit rates remained constant.
                ---------------------------------------------------------------------------
                 \34\ One option considered is to use the overnight Federal Funds
                rate in place of U.S. Treasury securities for the non-maturity
                deposit products.
                ---------------------------------------------------------------------------
                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 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
                [[Page 46481]]
                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.
                 At the same time, setting the ``prevailing rate'' based upon rates
                offered at the top of the market might be viewed as inconsistent with
                the FDIC's historical interpretation that the ``prevailing rates''
                offered should include rates offered by all participants in the market.
                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. Calculating the national rate with these special
                features is problematic. Foremost, information regarding special
                features is not consistently provided by institutions to private
                publications. Additionally, the data provided by institutions on Call
                Reports is limited to a very broad category of interest expense on non-
                maturity deposits and maturity deposits on only a quarterly basis.
                Institutions do not provide details on the interest expense related to
                the variety of deposit products, particularly for maturity deposits.
                One Vote per Institution
                 Commenters also recommended that published rates be limited to the
                highest rate offered by each depository institution. 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. The chart
                below compares, for the 12-month CD, the current national rate cap
                (using all branches) and the national rate rap using the highest rate
                offered by each IDI (in other words, each institution gets ``one
                vote''). The differences in rates range from 15 to 52 basis points,
                with a range of 25 basis points between 2012 through 2017, as
                illustrated in Chart 4 below.
                [GRAPHIC] [TIFF OMITTED] TP04SE19.006
                 In the FDIC's view, the one-bank, one-vote approach, almost by
                definition would result in a national rate that may not be reflective
                of market rates currently being offered. Moreover, the FDIC believes
                that institutions with multiple branches and more deposits have a
                greater impact on competition and the market rates. Therefore,
                including branches or weighting by market share is a more reflective
                way to calculate the national rate.
                [[Page 46482]]
                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,\35\ 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 institution's 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. As such, the FHLB borrowing rate would be an
                imprecise indicator of rates offered on deposits by insured depository
                institutions.
                ---------------------------------------------------------------------------
                 \35\ 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.
                1831f(g)(3).
                 \36\ FDIC--12 CFR 324.403(b)(1)(v); Board of Governors of the
                Federal Reserve System--12 CFR 208.43(b)(1)(v); Office of the
                Comptroller of the Currency--12 CFR 6.4(c)(1)(v).
                 \37\ The 22 institutions do not include any quantitatively well
                capitalized institutions that may have been administratively
                classified as less than well capitalized.
                ---------------------------------------------------------------------------
                VI. Expected Effects
                 The interest rate restrictions apply to an insured depository
                institution that is less than well capitalized under the Prompt
                Corrective Action (PCA) 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.\36\
                 Currently, very few insured depository institutions are less than
                well capitalized. As of March 30, 2019, there were 5,362 FDIC-insured
                institutions. Of these, 22 had capital ratios that put them in a PCA
                category lower than well capitalized and hence, potentially, affected
                by the proposed rule.\37\ The FDIC reviewed deposit interest rate
                information for a sample of 17 of these institutions for which data
                were available. Twelve of the 17 paid deposit interest rates that were
                less than both the current and the proposed national rate caps. Five of
                these 17 institutions paid interest rates on a number of deposit
                products that exceeded the current national rate cap but were less than
                the proposed national rate cap. A few deposit products at three of the
                banks paid rates exceeding both the current and proposed national rate
                caps.
                 Deposit interest rates paid by less than well capitalized banks
                that exceed the current national rate cap reflect situations where
                banks avail themselves of the local rate cap process. By generally
                increasing the level of the national interest rate caps in the current
                interest rate environment, the proposal can be expected to reduce the
                need for less than well capitalized banks to avail themselves of the
                local rate cap process. This is expected to simplify liquidity planning
                for these institutions.
                 In some future less favorable economic and banking environment,
                where the number of less than well capitalized banks increases
                substantially, the effects of the rule would become more meaningful.
                 Conceptually, under the proposed rule, the national rate cap would
                appear more responsive to, and reflective of, changes in the interest
                rate environment than is the current national rate cap. This would
                likely reduce the potential for severe liquidity problems or liquidity
                failures at viable banks to arise solely as a result of the operation
                of the cap. The FDIC believes this aspect of the rule is important,
                although difficult to quantify given uncertainties about both the
                future interest rate environment and the future condition of banks.
                 Having a national interest rate cap that is more reflective of the
                interest rate environment may also result in lower losses to the DIF.
                In the last financial crisis, the FDIC encouraged mergers and problem
                asset reduction for problems banks while they were opened as well as
                innovations in franchise marketing for failed bank assets.\38\
                Inappropriately restricting banks from competing for deposits could
                result in expedited failures and less time for less than well
                capitalized institutions to solve their problems either through asset
                sales or mergers.
                ---------------------------------------------------------------------------
                 \38\ Federal Deposit Insurance Corp., Crisis and Response: An
                FDIC History, 2008-2013 (2017), pp. 134, 175 (https://www.fdic.gov/bank/historical/crisis/crisis-complete.pdf).
                ---------------------------------------------------------------------------
                 On the other hand, by generally increasing the rate caps, the
                proposed rule may increase the possibility, as compared to the current
                national rate cap, that a less than well capitalized institution could
                continue to fund imprudent operations by soliciting insured deposits at
                high interest rates. Since the proposal sets the national rate cap at
                the greater of the deposit weighted average rate plus 75 basis points,
                or the 95th percentile of deposit weighted interest rates, two types of
                interest rate environments should be distinguished.
                 When interest rates are low and the rates paid by institutions are
                distributed over a relatively narrow band, the ``average plus 75 basis
                points'' prong of the rule would likely determine the cap. The
                operation of the cap in these low interest rate environments would be
                similar to the current cap, which defines ``significantly exceeds'' by
                reference to a 75 basis point difference. In higher or rising interest
                rate environments, in which the deposit interest rates paid by
                institutions are widely dispersed, the ``95th percentile'' prong of the
                rule would be more likely to determine the cap. In these environments,
                the proposal would in effect limit the interest rate paid by a less
                than well capitalized institution to less than the top five percent of
                deposit weighted rates on comparable deposit products. This ensures
                that the national rate cap will remain within a defined percentile band
                of the distribution of prevailing interest rates.
                 The FDIC is interested in commenters views on the impact of the
                proposed rule in less favorable economic environments, as regard to the
                objective of avoiding liquidity problems and liquidity failures of
                viable institutions, and the objective of ensuring that less than well
                capitalized institutions do not solicit deposits at interest rates
                significantly exceeding prevailing interest rates on comparable deposit
                products.
                Appendix 1
                 Historical charts illustrating the proposed national rate cap, the
                top rates offered, and the previous and current national rate caps,
                where applicable, since 2005.
                [[Page 46483]]
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                I. Request for Comment
                 The FDIC invites comment from all members of the public regarding
                all aspects of the proposal, including the alternatives considered.
                This request for comment is limited to this proposal. The FDIC will
                carefully consider all comments that relate to the proposal. In
                particular, the FDIC invite comment on the following questions:
                 Question 1. Does the proposed calculation of the rate caps enable
                less than well capitalized institutions to compete for deposits while
                satisfying section 29? If not, please explain why.
                 Question 2. The FDIC proposes to update the national rate cap
                information every month, with discretion to update the rate cap more or
                less frequently. Currently, the FDIC updates this information on a
                weekly basis. Should national rate calculations be provided more or
                less frequently than every month, as proposed?
                 Question 3. U.S. Treasury securities do not have maturities that
                are comparable to non-maturity deposit products (e.g., money market or
                interest checking). If the FDIC were to use U.S. Treasury securities in
                its calculation for the national rate cap, is there a fixed income
                product that could be used in place of U.S. Treasury securities as a
                proxy for the national rate cap for non-maturity deposit products?
                 Question 4. The proposed national rate and rate cap are weighted by
                deposit share, which gives relatively more influence to internet-only
                institutions that have large deposit shares than the current all-branch
                approach. Is this weighting system appropriate?
                 Question 5. To address potential downward volatility in the
                national rate cap, the FDIC is proposing that, for institutions that
                are subject to the interest rate restrictions, any subsequent published
                national rate cap, that is lower than the previously published national
                rate cap, take effect 3 days after publication. In certain
                circumstances, the FDIC would also have discretion to delay the date on
                which a national rate cap takes effect. Is this a reasonable approach
                to address the effects of potential downward volatility in the national
                rate cap? Are there other ways to address or reduce the effect of
                potential volatility on less than well capitalized institutions that
                are subject to the interest rate restrictions?
                 Question 6. Data limitations do not allow consistent means to
                include certain special promotions, like cash bonuses, to be included
                in the proposed national rate calculations. Is it appropriate to
                incorporate specials and promotions? Is there another way to capture
                these promotions or deposit products that pay interest based upon an
                index or are triggered at some future date (e.g., step-up rates)?
                 Question 7. The proposed national rate plus 75 basis points is
                being proposed as an option for products whose rates converge, as seen
                with a few deposit products. While this appears to be a useful
                alternative for a few products in the current rate environment, it
                might be less appropriate in other rate environments. For example, this
                alternative could yield a rate cap that does not ``significantly
                exceed'' the prevailing rate in a high rate environment. Are there
                better options for setting a proxy to determine what it means to
                ``significantly exceed''
                [[Page 46493]]
                a prevailing market rate when rates converge?
                 Question 8. Should the local rate be exclusively limited to
                institutions with a smaller geographical footprint? If so, how should
                eligibility be determined?
                 Question 9. If there is significant movement downwards in the
                national rate cap from one publication period to the next, do
                institutions need additional time to lower interest rates on particular
                products in an effort to be in compliance with the rate caps? If so,
                what is an appropriate amount of time?
                 Question 10. internet institutions are not included in the local
                deposit rate calculation. Is this a reasonable approach? If the FDIC
                allowed institutions to use internet competitors in their local rate
                calculations, how would they choose such competitors and which ones
                should be chosen?
                 Question 11. For purposes of the rate restrictions, the FDIC is
                considering an interpretation under which balances in non-maturity
                deposit accounts at the time the institution becomes less than well
                capitalized are not subject to the interest rate restrictions, but the
                balance would be if new funds were deposited into such accounts. Is
                this interpretation appropriate? Would there be substantial operational
                difficulties for institutions to monitor additions to these existing
                accounts in order to determine when they would be subject to the
                interest rate restrictions?
                VI. Administrative Law Matters
                A. Paperwork Reduction Act
                 In accordance with the requirements of the Paperwork Reduction Act
                (PRA) of 1995, 44 U.S.C. 3501-3521, the FDIC may not conduct or
                sponsor, and the respondent is not required to respond to, an
                information collection unless it displays a currently valid Office of
                Management and Budget (OMB) control number. This proposed rule does not
                create a new or revise an existing information collection. Therefore,
                no Paperwork Reduction Act clearance submission to OMB will be made.
                B. Solicitation of Comments on Use of Plain Language
                 Section 722 of the Gramm-Leach Bliley Act,\39\ requires the Federal
                banking agencies to use plain language in all proposed and final rules
                published after January 1, 2000. The FDIC invites your comments on how
                to make this revised proposal easier to understand. For example:
                ---------------------------------------------------------------------------
                 \39\ Public Law 106-102, 113 Stat. 1338, 1471 (Nov. 12, 1999).
                ---------------------------------------------------------------------------
                 Has the FDIC organized the material to suit your needs? If
                not, how could the material be better organized?
                 Are the requirements in the proposed regulation clearly
                stated? If not, how could the regulation be stated more clearly?
                 Does the proposed regulation contain language or jargon
                that is unclear? If so, which language requires clarification?
                 Would a different format (grouping and order of sections,
                use of headings, paragraphing) make the regulation easier to
                understand?
                C. Regulatory Flexibility Act
                 The Regulatory Flexibility Act (RFA) requires that, in connection
                with a proposed rule, an agency prepare and make available for public
                comment an initial regulatory flexibility analysis that describes the
                impact of the proposed rule on small entities.\40\ However, a
                regulatory flexibility analysis is not required if the agency certifies
                that the proposed rule will not have a significant economic impact on a
                substantial number of small entities, and publishes its certification
                and a short explanatory statement in the Federal Register together with
                the proposed rule. The Small Business Administration (SBA) has defined
                ``small entities'' to include banking organizations with total assets
                of less than or equal to $550 million that are independently owned and
                operated or owned by a holding company with less than or equal to $550
                million in total assets.\41\
                ---------------------------------------------------------------------------
                 \40\ 5 U.S.C. 601 et seq.
                 \41\ The SBA defines a small banking organization as having $550
                million or less in assets, where ``a financial institution's assets
                are determined by averaging the assets reported on its four
                quarterly financial statements for the preceding year.'' See 13 CFR
                121.201 (as amended, effective December 2, 2014). ``SBA counts the
                receipts, employees, or other measure of size of the concern whose
                size is at issue and all of its domestic and foreign affiliates.''
                See 13 CFR 121.103. Following these regulations, the FDIC uses a
                covered entity's affiliated and acquired assets, averaged over the
                preceding four quarters, to determine whether the covered entity is
                ``small'' for the purposes of RFA.
                ---------------------------------------------------------------------------
                 Generally, the FDIC considers a significant effect to be a
                quantified effect in excess of 5 percent of total annual salaries and
                benefits per institution, or 2.5 percent of total noninterest expenses.
                The FDIC believes that effects in excess of these thresholds typically
                represent significant effects for FDIC-insured institutions.
                 The FDIC is proposing revisions to its regulations relating to
                interest rate restrictions that apply to less than well capitalized
                insured depository institutions, by amending the methodology for
                calculating the national rate and national rate cap. The proposal would
                also modify the current local rate cap calculation and process.
                 Specifically, the proposal defines the national rate for a deposit
                product as the average rate for that product, where the average is
                weighted by domestic deposit share. The proposed national rate cap is
                the higher of (1) the rate offered at the 95th percentile of rates
                weighted by domestic deposit share or (2) the proposed national rate
                plus 75 basis points.
                 Because the FDIC's experience suggests some institutions compete
                for particular products within their local market area, the proposal
                would continue to provide a local rate cap process.
                 Specifically, the proposal would allow less than well capitalized
                institutions to provide evidence that any bank or credit union in its
                local market offers a rate on particular deposit product in excess of
                the national rate cap. If sufficient evidence is provided, then the
                less than well capitalized institution would be allowed to offer 90
                percent of the competing institution's rate on the particular product.
                For the reasons discussed below, the FDIC certifies that the proposed
                rule will not have a significant economic effect on a substantial
                number of small entities.
                 Based on March 31, 2019, Call Report data, the FDIC insures 5,362
                depository institutions, of which 3,920 are considered small entities
                for the purposes of RFA.\42\ As of March 31, 2019, 20 small, FDIC-
                insured depository institutions were less than well capitalized.\43\
                This represents less than two-fifths of one percent of all FDIC-insured
                institutions as of March 31, 2019, and approximately one-half of one
                percent of small, FDIC-insured institutions. For 17 small institutions
                that were less than well capitalized as of March 31, 2019, and that
                reported rates to a private data aggregator, FDIC analysts compared the
                national rate caps calculated under the current methodology with the
                national rate caps which would have been in effect under the proposal
                during the month of March across 11 deposit products.\44\ As
                [[Page 46494]]
                described in more detail below, the analysis shows that the proposed
                national rate caps are less restrictive than the current national rate
                caps, and would reduce the likelihood that less than well capitalized
                institutions would need to avail themselves of the local rate cap
                determination process.
                ---------------------------------------------------------------------------
                 \42\ March 31, 2019, FFIEC Call Report.
                 \43\ Id. The 20 institutions do not include any quantitatively
                well capitalized institutions that may have been administratively
                classified as less than well capitalized.
                 \44\ The 11 products are savings accounts, interest checking
                accounts, money market deposit accounts, 1-month, 3-month, 6-month,
                12-month, 24-month, 36-month, 48-month, and 60-month CDs. Jumbo and
                non-jumbo rate caps reported for the week of March 4, 2019, were
                averaged for each of the 11 products to calculate a single rate cap
                per product under the current methodology. (https://www.fdic.gov/regulations/resources/rates/historical/2019-03-04.html).
                ---------------------------------------------------------------------------
                 Five of the 17 (just under 30 percent) less than well capitalized
                institutions for which data were available reported offering rates
                above the national rate caps calculated under the current methodology
                for seven out of the 11 products considered.\45\ Under the proposed
                methodology, three institutions reported rates above the national rate
                caps on two products. Thus, the number of deposit products with rates
                constrained by the national rate cap is reduced for all five
                institutions, and two of those institutions would be relieved of the
                need to avail themselves of the local rate cap determination process.
                ---------------------------------------------------------------------------
                 \45\ This is not meant to suggest that these institutions are
                not in compliance with the national rate caps, but rather that they
                have sought and received local rate determinations that allow them
                to offer certain products at rates above the national caps.
                ---------------------------------------------------------------------------
                 For the 3-month, 6-month, 36-month, and 48-month CD products, two
                less than well capitalized small institutions reported offering rates
                above the national rate caps calculated under the current methodology.
                On average, the reported offering rates were 6, 13, 29, and 58 basis
                points above the national rate caps, respectively.
                 Three institutions reported offering rates above the national rate
                caps calculated under the current methodology for the 12-month and 24-
                month CD products, and four reported offering rates above the national
                rate caps as currently calculated for the 60-month CD product. Rates
                offered on the 12-month and 24-month CD products were 37 and 45 basis
                points above the national rate caps, on average. Rates offered on the
                60-month CD product averaged 26 basis points above the national rate
                cap for that product.
                 Across all deposit products offered at rates above the national
                rate caps calculated under the current methodology, the rates offered
                were 30 basis points above the national rate caps on average.
                 Had the national rate caps in effect at the time been calculated
                under the proposed methodology, then two less than well capitalized
                small institutions would have reported offering rates that averaged 11
                basis points above the national rate cap for the 3-month CD product,
                and one institution would have reported offering a rate three basis
                points above the national rate cap for the 48-month CD product.
                 Across all deposit products offered at rates above the national
                rate caps calculated under the proposed methodology, the rates offered
                were 7 basis points above the national rate caps on average.
                 No less than well capitalized small institution reported offering a
                rate above the national rate caps calculated under the current or
                proposed methodology for savings, interest checking, MMDA, or 1-month
                CD products during the timeframe considered.
                 The number of small, less than well capitalized institutions with
                offered rates above the national rate caps falls from five under the
                current methodology to three under the proposed methodology. Thus, the
                number of small less than well capitalized institutions that need to
                rely on a local rate cap is expected to fall.
                 The FDIC cannot more precisely quantify the effects of the proposed
                rule relative to the current methodology because it lacks data on the
                dollar amounts placed in deposit products broken down by the rates
                offered. However, few small institutions are less than well
                capitalized, and most of those small, less than well capitalized
                institutions for which data were available reported rates across the 11
                deposit products considered that were below the national rate caps as
                calculated under both the current and proposed methodologies. For the
                few less than well capitalized institutions as of March 31, 2019 whose
                deposit interest rates are constrained by the current national rate cap
                but not the proposed rate cap, the effect of the rule would be burden
                reducing in the sense of reducing the need for local rate cap
                determinations.
                 Based on the foregoing information, the FDIC certifies that the
                proposed rule will not significantly affect a substantial number of
                small entities. The FDIC welcomes comments on its analysis.
                Specifically, what data would help the FDIC better quantify the effects
                of the proposal compared with the current methodology?
                D. Riegle Community Development and Regulatory Improvement Act
                 Section 302 of the Riegle Community Development and Regulatory
                Improvement Act of 1994 (RCDRIA), 12 U.S.C. 4701, requires that each
                Federal banking agency, in determining the effective date and
                administrative compliance requirements for new regulations that impose
                additional reporting, disclosure, or other requirements on insured
                depository institutions, consider, consistent with principles of safety
                and soundness and the public interest, any administrative burdens that
                such regulations would place on depository institutions, including
                small depository institutions, and customers of depository
                institutions, as well as the benefits of such regulations.\46\ In
                addition, new regulations that impose additional reporting,
                disclosures, or other new requirements on insured depository
                institutions generally must take effect on the first day of a calendar
                quarter that begins on or after the date on which the regulations are
                published in final form.
                ---------------------------------------------------------------------------
                 \46\ 12 U.S.C. 4802.
                ---------------------------------------------------------------------------
                 Because the proposal would not impose additional reporting,
                disclosure, or other requirements on IDIs, section 302 of the RCDRIA
                therefore does not apply. Nevertheless, the requirements of RCDRIA will
                be considered as part of the overall rulemaking process. In addition,
                the FDIC also invites any other comments that further will inform the
                FDIC's consideration of RCDRIA.
                List of Subjects in 12 CFR Part 337
                 Banks, Banking, Reporting and recordkeeping requirements, Savings
                associations, Securities.
                Authority and Issuance
                 For the reasons stated in the preamble, the FDIC proposes to amend
                12 CFR part 337 as follows:
                PART 337--UNSAFE AND UNSOUND BANKING PRACTICES
                0
                1. The authority for 12 CFR part 337 continues to read:
                 Authority: 12 U.S.C. 375a(4), 375b, 1463(a)(1),1816, 1818(a),
                1818(b), 1819, 1820(d), 1828(j)(2), 1831, 1831f, 5412.
                0
                2. Amend Sec. 337.6 as follows:
                0
                a. Revise paragraphs (a) introductory text and (a)(3)(i) through (iii);
                0
                b. Remove paragraph (a)(5)(iii);
                0
                c. Remove paragraphs (b)(2)(ii) and (b)(3)(ii) and redesignate
                paragraphs (b)(2)(i) and (b)(3)(i) as paragraphs (b)(2) and (3); and
                0
                d. Remove paragraph (f).
                 The revisions read as follows:
                Sec. 337.6 Brokered deposits.
                 (a) Definitions. For the purposes of this section and Sec. 337.7,
                the following definitions apply:
                * * * * *
                 (3) * * *
                 (i) For purposes of section 29 of the Federal Deposit Insurance
                Act, this section, and Sec. 337.7, the terms well capitalized,
                adequately capitalized, and
                [[Page 46495]]
                undercapitalized,\11\ shall have the same meaning for each insured
                depository institution as provided under regulations implementing
                section 38 of the Federal Deposit Insurance Act issued by the
                appropriate federal banking agency for that institution.\12\
                ---------------------------------------------------------------------------
                 \11\ The term undercapitalized includes any institution that is
                significantly undercapitalized or critically undercapitalized under
                regulations implementing section 38 of the Federal Deposit Insurance
                Act and issued by the appropriate federal banking agency for that
                institution.
                 \12\ For the most part, the capital measure terms are defined in
                the following regulations: FDIC--12 CFR part 324, subpart H; Board
                of Governors of the Federal Reserve System--12 CFR part 208; and
                Office of the Comptroller of the Currency--12 CFR part 6.
                ---------------------------------------------------------------------------
                 (ii) If the appropriate federal banking agency reclassifies a well
                capitalized insured depository institution as adequately capitalized
                pursuant to section 38 of the Federal Deposit Insurance Act, the
                institution so reclassified shall be subject to the provisions
                applicable to such lower capital category under this section and Sec.
                337.7.
                 (iii) An insured depository institution shall be deemed to be
                within a given capital category for purposes of this section and Sec.
                337.7 as of the date the institution is notified of, or is deemed to
                have notice of, its capital category, under regulations implementing
                section 38 of the Federal Deposit Insurance Act issued by the
                appropriate federal banking agency for that institution.\13\
                ---------------------------------------------------------------------------
                 \13\ The regulations implementing section 38 of the Federal
                Deposit Insurance Act and issued by the federal banking agencies
                generally provide that an insured depository institution is deemed
                to have been notified of its capital levels and its capital category
                as of the most recent date: (1) A Consolidated Report of Condition
                and Income is required to be filed with the appropriate federal
                banking agency; (2) A final report of examination is delivered to
                the institution; or (3) Written notice is provided by the
                appropriate federal banking agency to the institution of its capital
                category for purposes of section 38 of the Federal Deposit Insurance
                Act and implementing regulations or that the institution's capital
                category has changed. Provisions specifying the effective date of
                determination of capital category are generally published in the
                following regulations: FDIC--12 CFR 324.402; Board of Governors of
                the Federal Reserve System--12 CFR part 208, subpart D; and Office
                of the Comptroller of the Currency--12 CFR 6.3.
                ---------------------------------------------------------------------------
                * * * * *
                0
                3. Add Sec. 337.7 to read as follows:
                Sec. 337.7 Interest rate restrictions.
                 (a) Definitions--(1) National rate. The weighted average of rates
                paid by all insured depository institutions on a given deposit product,
                for which data are available, where the weights are each institution's
                market share of domestic deposits.
                 (2) National rate cap. The higher of:
                 (i) The interest rate offered on a particular deposit product at
                the 95th percentile by insured depository institutions, for which data
                is available, weighted by each institution's share of total domestic
                deposits; or
                 (ii) The national rate plus 75 basis points.
                 (3) Local market rate cap. 90 percent of the highest interest rate
                paid on a particular deposit product in the institution's local market
                area. An institution's local market rate cap shall be based upon the
                rate offered on a particular product type and maturity period by an
                insured depository institution or credit union that is accepting
                deposits at a physical location within the institution's local market
                area.
                 (4) Local market area. An institution's local market area is any
                readily defined geographical area, which may include the State, county
                or metropolitan statistical area, in which the insured depository
                institution solicits depositors by offering rates on a particular
                deposit product.
                 (5) On-tenor and off-tenor maturities. On-tenor maturities include
                the following term periods: 1-month, 3-month, 6-month, 12-month, 24-
                month, 36-month, 48-month, and 60-month. All other term periods are
                considered off-tenor maturities for purposes of this section.
                 (b) Computation and publication of national rate cap--(1)
                Computation. The Corporation will compute the national rate cap for
                different deposit products and maturities, as determined by the
                Corporation based on available and reported data.
                 (2) Publication. The Corporation will publish the national rate cap
                monthly, but reserves the discretion to publish more or less
                frequently, if needed, on the Corporation's website. Except as provided
                in paragraph (e) of this section, for institutions that are less than
                well capitalized at the time of publication, a national rate cap that
                is lower than the previously published national rate cap will take
                effect 3 days after publication. The previously published national rate
                cap will remain in effect during this 3-day period.
                 (c) Application--(1) Well capitalized institutions. A well
                capitalized institution may pay interest without restriction under this
                section.
                 (2) Institutions that are not well capitalized. An institution that
                is not well capitalized may not accept or solicit deposits by offering
                a rate of interest on any deposit which exceeds the national rate cap.
                A less than well capitalized institution that seeks to pay a rate above
                the national rate cap but not exceeding its local market rate cap,
                should follow the notice provisions in paragraph (d) of this section.
                 (d) Notice related to local market rate cap applicability. An
                insured depository institution that seeks to pay a rate of interest up
                to its local market rate cap shall provide notice and evidence of the
                highest rate paid on a particular deposit product in the institution's
                local market area to the appropriate regional director. The institution
                shall update its evidence and calculations periodically, as requested
                by the appropriate regional director, and make such information
                available for inspection by examination staff.
                 (e) Offering products with off-tenor maturities. If an institution
                seeks to accept or solicit by offering a product with an off-tenor
                maturity for which the Corporation does not publish the national rate
                cap or that is not accepted or solicited by competing institutions
                within its local market area, then the institution will be required to
                use the rate accepted or solicited on the next lowest on-tenor maturity
                for that product when determining its applicable national or local
                market rate cap. For example, an institution seeking to accept or
                solicit a 26-month certificate of deposit must use the rate offered for
                a 24-month certificate of deposit to determine the institution's
                applicable national or local market rate cap.
                 (f) Discretion to delay effect of published national rate cap. In
                the event of a substantial unexpected decrease in the published
                national rate cap from one month to the next, the Corporation may, in
                its discretion, delay the date on which the published national rate cap
                takes effect. The previously published national rate cap will remain in
                effect until the effective date, as determined by the Corporation, of
                the subsequent published national rate cap.
                Federal Deposit Insurance Corporation.
                 By order of the Board of Directors.
                 Dated at Washington, DC, on August 20, 2019.
                Robert E. Feldman,
                Executive Secretary.
                [FR Doc. 2019-18360 Filed 9-3-19; 8:45 am]
                 BILLING CODE 6714-01-P
                

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