Each depositor insured to at least $250,000 per insured bank

Dodd Frank Study

Section 1506 of the Dodd-Frank Wall Street and Reform Consumer Protection Act requires that the FDIC conduct a study to evaluate:

• The definition of core deposits for the purpose of calculating insurance premiums.
• The potential impact on the Deposit Insurance Fund of revising the definitions of brokered deposits and core deposits to better distinguish between them.
• Differences between core deposits and brokered deposits and their role in the economy and U.S. banking sector.
• The potential stimulative effect on local economies of redefining core deposits.
• The competitive parity between large institutions and community banks resulting from redefining core deposits and brokered deposits

FDIC Study on Core Deposits and Brokered Deposits - PDF 1.3mb/126 pages (PDF Help)

Background

Section 29 of the Federal Deposit Insurance Act restricts the use of brokered deposits and the rate of interest paid on deposits for insured institutions that are less than well-capitalized as defined in Section 38 of the FDI Act. Section 29 restrictions are implemented by Section 337.6 of the FDIC Rules and Regulations

The banking industry has seen significant technological advances and other innovations in the deposit gathering process since the brokered deposit regulation was implemented. This study provides us with a unique opportunity to look at the current range of deposit types and the brokered deposit regulation and other regulations and supervisory rules to determine whether these rules and regulations are still relevant in light of these innovations. To that end, the FDIC would appreciate input on how industry changes have affected deposit stability and franchise value and whether these innovations warrant changes to statutory or regulatory treatment of deposits.

Areas for Consideration

The FDIC is particularly interested in: (1) understanding how new methods of obtaining deposits have affected deposit stability and franchise value; and (2) whether we should recommend changes to the core and brokered deposit definitions and develop new classifications of deposits that depend on characteristics like relative stability or volatility.

As part of the study, the FDIC will be seeking input on the following:

• In times of financial stress, what types of deposits are likely to remain at an institution and what types of deposits are likely to leave the institution?
• Does the presence of certain kinds of deposits (e.g., brokered, internet, listing service) inherently increase an institution's risk? Does their presence facilitate increased risk-taking?
• What types of deposits are likely to enhance a failed institution's franchise value and what types of deposits are likely to reduce it?
• What recommendations would you make for legislative or regulatory changes with respect to core and brokered deposits?

Comments should be submitted to coredepositstudy@fdic.gov by May 1, 2011. The FDIC will review and take the comments into account when preparing the study.