November 20, 2024

Via Electronic Mail

Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Attention: James P. Sheesley, Secretary

Re: Unsafe and Unsound Banking Practices: Brokered Deposits Restrictions (Federal Deposit Insurance Corporation Docket No. RIN 3064-AF99)

Ladies and Gentlemen:

The American Bankers Association, Bank Policy Institute, United States Chamber of Commerce, Financial Services Forum, Financial Technology Association, Independent Community Bankers of America, and Securities Industry and Financial Markets Association (collectively, “the Associa-tions”) are filing this comment on the notice of proposed rulemaking issued by the Federal De-posit Insurance Corporation concerning brokered deposits. See Unsafe and Unsound Banking Practices: Brokered Deposits Restrictions, 89 Fed. Reg. 68,244 (Aug. 23, 2024).¹

As described in detail below, any final rule adopted based on this proposal would violate the Administrative Procedure Act in multiple ways. Among other flaws, the proposal is inconsistent with the statutory definition of a “deposit broker,” which, as relevant here, requires a deposit broker to be “engaged in the business of placing deposits[] or facilitating the placement of deposits,” and excludes any person “whose primary purpose is not the placement of funds with depository institutions.” 12 U.S.C. § 1831f(g)(1), (g)(2)(I). The proposed rule would sweep in entities that are not “engaged in the business of placing deposits” at all, let alone as their “pri-mary purpose.”

The proposed rule, if adopted without significant changes, would also be arbitrary and capricious on several grounds. Among others, the proposal fails to justify the agency’s change in position since 2021, consider the reliance interests created by the existing rules, or explore obvious alternatives. The FDIC also fails to assess the economic or legal effects of the proposal. And, without justification, the proposal lumps together different types of deposits as “brokered” without any meaningful analysis of the very different underlying business models of third parties who place their customers’ deposits with banks.

Each of these flaws, on its own, suffices to render the proposal unlawful. Accordingly, the FDIC should either withdraw the proposed rule or re-propose a new rule that adheres to the text of Section 1831f and otherwise complies with the APA.²

I. Background

A traditional deposit broker is in the business of collecting deposits from third parties and then placing them with banks. For example, a deposit broker might collect deposits from customers and allocate those deposits to banks for a fee. Customers may opt to use these services to obtain the best interest rates, and banks may opt to use these services to raise deposits at a lower customer-acquisition cost.

Brokered deposits are governed primarily by Section 29 of the Federal Deposit Insurance Act, codified at 12 U.S.C. § 1831f. Congress enacted Section 1831f in response to the savings and loan crisis of the 1980s, and out of a concern that financially troubled institutions were relying too heavily on “hot money” deposit brokers who would place short-term deposits at banks with higher-than-market interest rates in order to turn a profit. See Senate Congressional Record, Proceedings and Debates of the 101st Congress, First Session, 135 Cong. Rec. S4238-01, 1989 WL 191889 (Apr. 19, 1989). The statute provides that “[a]n insured depository institution that is not well capitalized may not accept funds obtained, directly or indirectly, by or through any deposit broker.” 12 U.S.C. § 1831f(a).

In regulating banks’ ability to rely on brokered deposits for funding, Congress did not intend the statute to apply to just any entity that places third-party deposits at a bank. Instead, as relevant here, Congress expressly defined the phrase “deposit broker” to mean:

any person engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions or the business of placing deposits with insured depository institutions for the purpose of selling interests in those deposits to third parties.

1. The Appendix to this letter provides information about each of the Associations. [↩]
2. Other commenters, including the Associations, explain in further detail why the proposed rule raises serious legal and policy problems and should be withdrawn or re-proposed. Each of the Associations incorporates by reference its individual comment letter. [↩]