About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1 1 (January 6, 2020)

handle is hein.crs/govbhyw0001 and id is 1 raw text is: Researh Sevice FDIC Proposes Changes to Brokered Deposit Regulation January 6, 2020 On December 12, 2019, the Federal Deposit Insurance Corporation (FDIC) proposed changes to current rules that restrict banks that are not well capitalized from accepting brokered deposits, a perennial point of contention between banks and regulators. Recently, banks and financial technology companies have developed or begun using new arrangements that may qualify as brokered deposits. This development has refocused attention on the issue. Background Core deposits are the funds individuals or companies directly place in checking and savings accounts, primarily to utilize the safekeeping, check-writing, and money-transfer services banks provide. Brokered deposits, in contrast, are funds that a third-party broker places in a bank on behalf of a client, typically to maximize interest earned and possibly also to ensure the client does not have any one bank account that exceeds the FDIC's $250,000 insurance limit. Core deposits are sticky-depositors are unlikely to switch banks due to differences in interest rates, because they face costs and inconvenience when doing so (e.g., filling out new direct deposit forms, getting new checks, and changing automatic bill payment information). In contrast, brokers typically monitor interest rates offered at numerous banks and move funds from one bank to another with higher interest rates, even if the difference is small. Regulators traditionally have been wary of brokered deposits due to their potential lack of stability as a funding source, and banks that overly rely on them or use them to lend imprudently could face an increased risk of failure. Banks face liquidity risk-their assets cannot be converted into cash as easily as depositors can withdraw funds. A bank run is a classic illustration of this: depositors demand their deposits back en masse, but the bank does not have the cash to meet its obligations. Similarly, if deposit brokers withdraw funding en masse, a bank could become distressed. The risk of failure increases further if a bank seeks brokered deposits to expand in a relatively risky manner, such as by making loans in volatile or unfamiliar markets. Bank runs on core deposits have been rare since the creation of federal deposit insurance because core depositors have less incentive to run when they are confident they will not suffer losses in the event of a bank failure. In contrast, if a bank does not offer high-enough interest rates, Congressional Research Service https://crsreports.congress.gov IN11209 CRS NStGHT Prepaimed for Mernbei-s and Committees o.i C- --q .. . . . . . . . ...-----------------------------------------------------------------------------------------------------------------------------------------------------------------------

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most