This proposal does a good job of marshalling evidence of the risks posed by brokered deposits.1
The proposal does not, however, offer any evidence that some of the deposits that this proposal would re-classify as brokered deposits actually present the same or similar risks. That evidence should inform whether a particular type of deposit falls within the newly proposed framework for the primary purpose exception.
For example, in proposing to eliminate the enabling transactions test, the proposal offers no discussion of the risks of these deposits. The proposal flatly and simply asserts “[t]he FDIC believes that there is no relevant difference between an agent or nominee’s purpose in placing deposits to enable transactions and placing deposits to access a deposit account and deposit insurance." 2 The underlying concern, I suspect, relates to skepticism of banks’ partnerships with fintech, but those risks would be better regulated through rules that are more fit for that purpose.
Similarly, in proposing to narrow the 25 percent test, the proposal simply asserts “lowering the threshold to 10 percent may reduce potential risks to safety and soundness and to the [Deposit Insurance Fund] by providing more transparency regarding the characteristics of the deposits so placed." 3
As I have argued before, it is important that the FDIC make a case for its rulemakings.4 I am unable to support this proposal without a more compelling case for some of its more significant changes.
- 1
See generally NPR at 3–12.
- 2
Id. at 51 (emphasis added).
- 3
Id. at 45 (emphasis added)
- 4
Statement by Jonathan McKernan, Member, FDIC Board of Directors, on the Proposed Amendments to the Capital Framework (Jul. 27, 2023); Remarks by Jonathan McKernan, Director, FDIC Board of Directors, at the New York State Bar Association and Mayer Brown on the Basel Endgame and Long-Term Debt Proposals (Oct. 4, 2023).