WASHINGTON — The Federal Deposit Insurance Corp. proposed clarifying rules limiting how much banks may pay for brokered deposits.
At a board meeting Tuesday to discuss the proposal, FDIC Chairman Sheila Bair said she is interested in whether the limits should go further, covering even well-capitalized institutions.
"With the current situation, there are some banks on the 'Troubled Bank' list that have remained well capitalized," Ms. Bair said. "I think there is another issue about whether we should expand the restrictions to include other categories."
Under current rules, adequately capitalized institutions are restricted in terms of paying much above comparable Treasury securities or the rates being paid in a bank's "normal market area."
The proposal recognizes that the definition of "normal market area" is ambiguous, and that Treasury rates are abnormally low right now. The agency is proposing simplifying the process by establishing a "national rate" based on a simple average of what all institutions pay on deposits.
However, the FDIC would continue to require that adequately capitalized institutions get a waiver from the agency to accept new brokered deposits, and it would continue to bar undercapitalized banks and thrifts from accepting any brokered deposits.
Officials said the rule aims to provide some flexibility for banks and thrifts that have found the restrictions too severe in light of current Treasury rates, while reining in institutions that have used the vagueness in the current rules to pay improperly high rates.
"Our [current] regulation substantially underestimates prevailing national deposit rates," Louis Bervid, a senior examination specialist in the agency's division of supervision and consumer protection, said at the board meeting.
But he also said the new standard would limit the ability of institutions to interpret "normal market area" as allowing them to pay too much. "The uncertainty … has made it difficult ... to administer the regulation and appears to have resulted in higher rates being paid by less-than-well-capitalized banks."
Despite allowing some flexibility, agency officials indicated that they remain concerned that weak institutions are relying too heavily on brokered deposits; the proposal asks whether rate restrictions should be toughened.
The FDIC is accepting public comment on the proposal for 60 days.
