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    Summary of Reciprocal Deposits Legislation

    Economic Growth, Regulatory Relief, and Consumer Protection Act

    Background

    A new law, known as the “Economic Growth, Regulatory Relief, and Consumer Protection Act,” adds a limited exception from brokered deposit treatment for reciprocal deposits. In broad terms, reciprocal deposits up to specified amounts are no longer considered brokered.

    Most banks that use reciprocal deposits are community banks. By giving banks access to deposits that they might not otherwise attract, reciprocal deposits enhance a bank’s ability to lend to local borrowers. The new exception, by making most reciprocal deposits nonbrokered, removes an unnecessary regulatory burden on the use of reciprocal deposits to support local lending.

    This page provides an abbreviated summary of the reciprocal deposits provision. This page does not attempt to specify, but is subject to, all the relevant definitions, terms, and conditions in the law. Reviewing this page is not a replacement for reviewing the law itself. Each bank should consult its own counsel on the meaning of the enacted language.


    Overview

    The provision amends section 29 of the Federal Deposit Insurance Act by adding a new subsection (i) to section 29, to be codified at 12 U.S.C. § 1831f(i). It also modifies subsection (e) of section 29, codified at 12 U.S.C. § 1831f(e). The effect is as follows:

    For a bank that is well capitalized and has a composite condition of outstanding or good (CAMELS 1 or 2):

    If a bank that is not well capitalized or that does not have a composite condition of outstanding or good receives a waiver from the FDIC permitting it to accept brokered deposits:

    If a bank that is not well capitalized or that does not have a composite condition of outstanding or good does not receive an FDIC waiver permitting it to accept brokered deposits:

    Read the Reciprocal Deposits Provision.

    Download a printable version of the Reciprocal Deposits Legislation Summary.


    For further information, please feel free to contact:
    Promontory Interfiancial Network, LLC
    Client Services
    1300 North 17th Street, Suite 1800
    Arlington, VA 22209
    (866) 776-6426
    contactus@promnetwork.com

    [1] Under the existing section 29(e) of the FDI Act, if a bank that is adequately capitalized, but not well capitalized, accepts brokered deposits pursuant to an FDIC waiver, the interest rate for the brokered deposits accepted while not well capitalized cannot significantly exceed the normal market area rate or the national rate. 12 U.S.C. § 1831f(e). Under the law, this restriction applies to reciprocal deposits that a bank accepts while not well capitalized, even though they will no longer be considered brokered. Separately, the existing section 29(h) of the FDI Act provides that, if a bank is undercapitalized, it shall not solicit any deposits by offering interest rates that are significantly higher than the prevailing rates in the bank’s normal market areas or the market area in which the deposits would otherwise be accepted. 12 U.S.C. § 1831f(h). The law does not change subsection (h).