6742 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 

1 12 U.S.C. 1831f (also referred to herein as 

‘‘Section 29’’). 

2See Public Law 101–73, August 9, 1989, 103 

Stat. 183. 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Parts 303 and 337 

RIN 3064–AE94; 3064–AF02 

Unsafe and Unsound Banking 

Practices: Brokered Deposits and 

Interest Rate Restrictions 

AGENCY: Federal Deposit Insurance 

Corporation (FDIC). 

ACTION: Final rule. 

SUMMARY: The FDIC is finalizing 

revisions to its regulations relating to 

the brokered deposits and interest rate 

restrictions that apply to less than well 

capitalized insured depository 

institutions. For brokered deposits, the 

final rule establishes a new framework 

for analyzing certain provisions of the 

‘‘deposit broker’’ definition, including 

‘‘facilitating’’ and ‘‘primary purpose.’’ 

For the interest rate restrictions, the 

FDIC is amending its methodology for 

calculating the national rate, the 

national rate cap, and the local market 

rate cap. Further, the FDIC is explaining 

when nonmaturity deposits are accepted 

and when nonmaturity deposits are 

solicited for purposes of applying the 

brokered deposits and interest rate 

restrictions. 

DATES: Effective Date: April 1, 2021; 

with an extended compliance date of 

January 1, 2022, as provided in section 

I(C)(4). 

FOR FURTHER INFORMATION CONTACT: RaeAnn Miller, Senior Deputy Director, 

(202) 898–3898, rmiller@fdic.gov, 

Division of Risk Management 

Supervision; or Vivek V. Khare, 

Counsel, (202) 898–6847, vkhare@

fdic.gov, Legal Division. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Brokered Deposits 

A. Policy Objectives 

B. Background 

1. Historical Statutory Framework 

2. Current Regulation 

3. Advance Notice of Proposed Rulemaking 

4. Overview of Notice of Proposed 

Rulemaking and Comments Received 

C. Final Rule and Discussion of Comments 

1. Deposit Broker Definition 

a. Exclusive Deposit Placement 

Arrangements 

b. Engaged in the Business of Placing 

Deposits 

c. Engaged in the Business of Facilitating 

the Placement of Deposits 

d. Engaged in the Business of Placing 

Deposits With Insured Depository 

Institutions for the Purpose of Selling 

Interests in Those Deposits to Third 

Parties 

2. Exceptions to the ‘‘Deposit Broker’’ 

Definition 

a. Bank Operating Subsidiaries and the IDI 

Exception 

b. Primary Purpose Exception 

3. Notice and Application Process for the 

Primary Purpose Exception 

a. Notice Requirement 

b. Notice Contents and Reporting 

Requirement 

c. Overview of the Application Process 

d. Application Contents 

e. Reporting for Approved Applicants 

f. Monitoring for IDIs 

g. Requesting Additional Information, 

Requiring Re-Application, Imposing 

Additional Conditions, and Withdrawing 

Approvals 

h. Additional Third Parties 

4. Effective Date and Extended Compliance 

5. Prior FDIC Staff Advisory Opinions 

D. Discussion of Certain Other Deposit 

Placement Arrangements Raised by 

Commenters 

E. Other Supervisory Matters Related to 

Brokered Deposits 

F. Alternatives 

G. Expected Effects 

II. Interest Rate Restrictions 

A. Policy Objectives 

B. Background 

C. Regulatory Approach 

D. Need for Further Rulemaking 

E. Advance Notice of Proposed Rulemaking 

and Notice of Proposed Rulemaking 

1. National Rate 

2. National Rate Cap 

3. Local Rate Cap 

4. Off-Tenor Maturity Products 

F. Discussion of Comments 

1. Discussion of Public Comment on the 

National Rate 

2. Discussion of Public Comment on the 

National Rate Cap 

3. Discussion of Public Comment on Local 

Rate Cap 

4. Discussion of Other Comments 

G. Final Rule 

1. National Rate 

2. National Rate Cap 

3. Local Market Rate Cap in the Final Rule 

4. Off-Tenor Maturity Products 

H. Alternatives 

I. Expected Effects 

III. Treatment of Nonmaturity Deposits 

A. Background 

B. Proposed Rulemakings 

C. Comments 

D. Final Rule 

1. Solicitation of Funds by Offering Rates 

of Interest 

2. Acceptance of Brokered Deposits 

3. Acceptance of Brokered Deposits Subject 

to a Waiver Into a Nonmaturity Account 

4. Summary of Treatment of Nonmaturity 

Deposits 

IV. Administrative Law Matters 

A. Paperwork Reduction Act 

B. Regulatory Flexibility Act 

C. Riegle Community Development and 

Regulatory Improvement Act of 1994 

D. Congressional Review Act 

E. Use of Plain Language 

I. Brokered Deposits 

A. Policy Objectives 

Significant technological changes 

have affected many aspects of the 

banking industry, including the manner 

in which banks source deposits. For 

many banks, brokered deposits are an 

important source of funds, and the 

marketplace for brokered deposits has 

evolved in response to technological 

developments and new business 

relationships. The FDIC recognizes that 

its regulations governing brokered 

deposits are outdated and do not reflect 

current industry practices and the 

marketplace. As such, the FDIC initiated 

an extensive rulemaking process to seek 

input from stakeholders and to develop 

new regulations that take into 

consideration current industry practices 

and that allow for continued innovation. 

Banks often collaborate with third 

parties, including financial technology 

companies, for a variety of business 

purposes including access to deposits. 

Moreover, banks are increasingly relying 

on new technologies to engage and 

interact with their customers, and it 

appears that this trend will continue. 

Through this rulemaking process, the 

FDIC attempted to ensure that the 

brokered deposit regulations would 

continue to promote safe and sound 

practices while ensuring that the 

classification of a deposit as brokered 

appropriately reflects changes in the 

banking landscape. 

B. Background 

1. Historical Statutory Framework 

Section 29 of the Federal Deposit 

Insurance Act (FDI Act) 1 restricts the 

acceptance of deposits by certain 

insured depository institutions (or 

‘‘IDIs’’) from a ‘‘deposit broker.’’ Section 

29, entitled ‘‘Brokered Deposits,’’ was 

added to the FDI Act by the Financial 

Institutions Reform, Recovery, and 

Enforcement Act of 1989 (FIRREA). The 

law originally restricted troubled 

institutions (i.e., those that did not meet 

the minimum capital requirements) 

from (1) accepting deposits from a 

deposit broker without a waiver and (2) 

soliciting deposits by offering rates of 

interest on deposits that were 

significantly higher than the prevailing 

rates of interest on deposits offered by 

other insured depository institutions 

having the same type of charter in such 

depository institution’s normal market 

area.2

Two years later, Congress enacted the 

Federal Deposit Insurance Corporation 

Improvement Act of 1991 (FDICIA), 

which added the Prompt Corrective 

Action (PCA) capital regime to the FDI 

Act and also amended the threshold for 


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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 6743 

3See Public Law 102–242, Dec. 19, 1991, 105 Stat 

2236. 

4See 12 U.S.C. 1831f. 

5See id. 

6See id. 

7 12 U.S.C. 1831f(i)(2)(E). 

8See 12 CFR 337.6. The FDIC issued two 

rulemakings related to the interest rate restrictions 

under this section. The FDIC is also adopting a final 

rule for the interest rate restrictions as discussed in 

Part II of this Notice. 

9See 12 U.S.C. 1831f. 10 12 U.S.C. 1831f(g)(4). 

11See 57 FR 23933, 23040 (1992). The FDIC 

indicated in the preamble for the 1992 final rule 

that implemented the FDICIA revisions to Section 

29 that those revisions were not intended to apply 

to deposits placed by insured depository 

institutions assisting government departments and 

agencies in administration of minority or womenowned deposit programs. 

12 84 FR 2366 (Feb. 6, 2019). 

the brokered deposit and interest rate 

restrictions from a troubled institution 

to a bank falling below the ‘‘well 

capitalized’’ PCA level. At the same 

time, the FDIC was authorized to waive 

the brokered deposit restrictions for a 

bank that is adequately capitalized upon 

a finding that the acceptance of such 

deposits does not constitute an unsafe 

or unsound practice with respect to the 

institution.3 Thus, under current law, a 

‘‘well capitalized’’ insured depository 

institution is not restricted from 

accepting deposits from a deposit 

broker. An ‘‘adequately capitalized’’ 

insured depository institution may 

accept deposits from a deposit broker 

only if it has received a waiver from the 

FDIC.4 A waiver may be granted by the 

FDIC ‘‘upon a finding that the 

acceptance of such deposits does not 

constitute an unsafe or unsound 

practice’’ with respect to that 

institution.5 An ‘‘undercapitalized’’ 

depository institution is prohibited from 

accepting deposits from a deposit 

broker.6

In 2018, Section 29 of the FDI Act was 

amended as part of the Economic 

Growth, Regulatory Relief, and 

Consumer Protection Act, to except a 

capped amount of certain ‘‘reciprocal 

deposits’’ from treatment as brokered 

deposits.7

2. Current Regulations 

Section 337.6 of the FDIC’s Rules and 

Regulations implements and closely 

tracks the statutory text of Section 29, 

particularly with respect to the 

definition of ‘‘deposit broker’’ and its 

exceptions.8 Section 29 of the FDI Act 

does not directly define a ‘‘brokered 

deposit,’’ rather, it defines a ‘‘deposit 

broker’’ for purposes of the restrictions.9

Thus, the meaning of the term 

‘‘brokered deposit’’ turns upon the 

definition of ‘‘deposit broker.’’ 

Section 29 and the FDIC’s 

implementing regulation define the term 

‘‘deposit broker’’ to include: 

Æ 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; and 

Æ an agent or trustee who establishes 

a deposit account to facilitate a business 

arrangement with an insured depository 

institution to use the proceeds of the 

account to fund a prearranged loan. 

This definition is subject to the 

following nine statutory exceptions: 

1. An insured depository institution, 

with respect to funds placed with that 

depository institution (the ‘‘IDI 

exception’’); 

2. an employee of an insured 

depository institution, with respect to 

funds placed with the employing 

depository institution; 

3. a trust department of an insured 

depository institution, if the trust in 

question has not been established for 

the primary purpose of placing funds 

with insured depository institutions; 

4. the trustee of a pension or other 

employee benefit plan, with respect to 

funds of the plan; 

5. a person acting as a plan 

administrator or an investment adviser 

in connection with a pension plan or 

other employee benefit plan provided 

that that person is performing 

managerial functions with respect to the 

plan; 

6. the trustee of a testamentary 

account; 

7. the trustee of an irrevocable trust 

(other than one described in paragraph 

(1)(B)), as long as the trust in question 

has not been established for the primary 

purpose of placing funds with insured 

depository institutions; 

8. a trustee or custodian of a pension 

or profit sharing plan qualified under 

section 401(d) or 403(a) of the Internal 

Revenue Code of 1986; or 

9. an agent or nominee whose primary 

purpose is not the placement of funds 

with depository institutions (the 

‘‘primary purpose exception’’). 

The statute and regulation also define 

an ‘‘employee’’ to mean any employee: 

(1) Who is employed exclusively by the 

insured depository institution; (2) 

whose compensation is primarily in the 

form of a salary; (3) who does not share 

such employee’s compensation with a 

deposit broker; and (4) whose office 

space or place of business is used 

exclusively for the benefit of the insured 

depository institution which employs 

such individual.10

In 1992, the FDIC amended its 

regulations to include the following 

tenth exception: ‘‘An insured depository 

institution acting as an intermediary or 

agent of a U.S. government department 

or agency for a government sponsored 

minority or women-owned depository 

institution program.’’ 11

3. Advance Notice of Proposed 

Rulemaking 

On December 18, 2018, the FDIC 

Board approved an Advance Notice of 

Proposed Rulemaking (ANPR), inviting 

comment on all aspects of the FDIC’s 

brokered deposit and interest rate 

regulations to obtain input from the 

public on its brokered deposit and 

interest rate regulations in light of 

significant changes in technology, 

business models, the economic 

environment, and products since the 

regulations were adopted. 

The ANPR discussed issues with 

sweep deposits, deposit listing services, 

statutory exceptions (particularly the 

primary purpose exception), software 

products, prepaid cards, and interest 

rate restrictions applicable to less than 

well-capitalized institutions 

(particularly the definition and 

calculation of the national rate). The 

ANPR also included historical and 

statistical analysis, in addition to other 

information, including the FDIC’s 

experience with brokered deposit 

questions. The ANPR was published in 

the Federal Register on February 6, 

2019.12 The FDIC received over 130 

comments to the ANPR from 

individuals, banking organizations, nonprofits, as well as industry and trade 

groups, representing banks, insurance 

companies, and the broader financial 

services industry. 

Of the total comments, 59 related to 

the FDIC’s rules on the interest rate 

restrictions. The majority of these 

commenters expressed concerns about 

the national rate calculation. Concerns 

included the effect of calculating an 

average rate by including branches 

(minimizing the significance of onlinefocused banks, which have few or no 

branches) and data issues with banks’ 

published rates. Commenters suggested 

that to make rates appropriate for 

different economic environments and 

maximum transparency, the FDIC 

should set national rates at the higher of 

the current rates and the previous (1992) 

rates based on US Treasury yields. 

Other comments addressed the local 

rate, stressing the necessity to compete 

for particular products within local 

market areas. 


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6744 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 

13 85 FR 7453 (Feb. 10, 2020). 

14 84 FR 2366 (Feb. 6, 2019). 

15This Notice also uses the term ‘‘third party’’ in 

reference to the subject of the ‘‘deposit broker’’ 

definition. Consistent with section 29, this Notice 

also refers to the potential deposit broker with 

respect to the primary purpose exception as the 

‘‘agent or nominee.’’ 

16The comment period was extended for another 

60 days to provide commenters with additional 

time to address the matters raised in the NPR. 85 

FR 19706 (Apr. 8, 2020). 

17 12 U.S.C. 1831f(g)(1)(A). 

18 12 U.S.C. 1831f(g)(1)(B). 

19 12 U.S.C. 1819(a)(Tenth). 

Comments to the ANPR referring to 

brokered deposit issues other than 

interest rate caps focused on the need 

for clarity, specifically requesting the 

FDIC to clarify its historical 

interpretation of the ‘‘deposit broker’’ 

definition and its corresponding 

statutory and regulatory exceptions. 

Many commenters stated that the FDIC 

had interpreted the definition of deposit 

broker too broadly and had significantly 

expanded the types of entities 

considered to be deposit brokers beyond 

what was originally contemplated when 

Section 29 was enacted. 

Commenters also requested clarity in 

the deposit broker definition, 

specifically with the primary purpose 

exception. Many commenters preferred 

a bright-line test and noted certain types 

of deposits are designed for a purpose 

other than establishing a depository 

account, provide stable sources of 

funding, do not have the risks 

associated with traditional brokered 

deposits, and, therefore, should meet 

the primary purpose exception. 

Because of the strong interest in both 

interest rate cap issues and other 

brokered deposit issues and to better 

address commenters’ concerns, the FDIC 

decided to issue separate proposed 

rulemakings, one relating to interest rate 

caps and the second, relating to 

proposed changes in the regulations 

other than those relating to interest rate 

caps. 

4. Overview of Notice of Proposed 

Rulemaking and Comments Received 

In its notice of proposed rulemaking 

(‘‘Brokered Deposits NPR,’’ or, in this 

Part, ‘‘proposal’’ or ‘‘proposed rule’’),13

and in response to comments submitted 

in response to the ANPR,14 the FDIC 

proposed a number of significant 

changes to its brokered deposit 

regulation to modernize the regulation 

in light of technological and other 

innovations in the way banks source 

deposits. The FDIC proposed 

clarifications to the circumstances 

under which a person 15 meets the 

deposit broker definition by interpreting 

when a person is considered to be 

engaged in the business of ‘‘placing’’ or 

‘‘facilitating the placement’’ of deposits 

on behalf of its customers. These 

proposed changes were intended to 

provide clarity for industry participants 

as to what types of deposit arrangements 

would be considered ‘‘brokered’’ and 

which would not. In addition, the FDIC 

proposed an expansion of the IDI 

exception to permit wholly owned 

subsidiaries that meet certain criteria to 

be eligible for the exception. 

The FDIC also proposed an 

interpretation for the ‘‘primary purpose’’ 

exception to the ‘‘deposit broker’’ 

definition and sought to provide a 

mechanism through which IDIs or third 

parties could apply to the FDIC to 

receive approval for meeting the 

primary purpose exception. The FDIC 

proposed that brokered CDs would 

continue to be considered to be 

brokered. Finally, the FDIC proposed 

that existing staff FDIC advisory 

opinions would either be rescinded if 

they were no longer applicable under 

the final rule or codified as part of the 

final rule if relevant under the new 

regulation. 

The Brokered Deposits NPR solicited 

comment on all aspects of the proposed 

rule. The comment period ended on 

June 9, 2020.16 In response to the 

proposal, the FDIC received more than 

160 comments from individuals, 

banking organizations, non-profits, as 

well as industry and trade groups 

representing banks, insurance 

companies, and the broader financial 

services industry. A number of 

commenters supported the FDIC’s 

efforts to modernize the rule and 

provide clarifications to key definitions. 

Generally, a common theme amongst 

the commenters was a desire for the 

FDIC to provide additional clarification 

to its proposed changes to the ‘‘deposit 

broker’’ definition and its corresponding 

statutory and regulatory exceptions. 

Some commenters suggested that a 

legislative change to Section 29 was 

needed, including replacing the 

brokered deposit restrictions with a 

restriction on asset growth for less than 

well capitalized institutions. 

Commenters also suggested that the 

FDIC revise certain aspects of the 

proposal to permit certain types of 

arrangements that, under the proposal, 

would continue to be considered to be 

brokered to instead either fall within an 

exception or otherwise to be determined 

to be non-brokered. A small number of 

commenters opposed the proposed 

changes, with one commenter stating 

that the changes would create new 

loopholes in the statutory restrictions on 

brokered deposits, threatening safety 

and soundness of banks and the Deposit 

Insurance Fund (DIF), without evidence 

that the changes are necessary and 

without knowing the impact of the 

changes. Another commenter criticized 

the proposal for failing to focus on the 

underlying risks of brokered deposits 

and weakening the FDIC’s ability to 

understand deposit volatility and 

balance sheet risks of supervised IDIs. A 

summary of comments received on 

specific aspects of the proposed rule is 

provided below in section. 

C. Final Rule and Discussion of 

Comments 

1. Deposit Broker Definition 

Section 29 of the FDI Act provides 

that a person is a ‘‘deposit broker’’ if it 

is 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.17 An agent or trustee also 

meets the ‘‘deposit broker’’ definition 

when establishing a deposit account to 

facilitate a business arrangement with 

an insured depository institution to use 

the proceeds of the account to fund a 

prearranged loan.18

The statute does not further define the 

categories that make up the definition of 

‘‘deposit broker,’’ and the FDIC has 

authority under the FDI Act to issue 

regulations to further clarify the types of 

activities that cause a person to be 

considered to be a deposit broker.19

Historically, the FDIC has considered 

several factors in evaluating whether or 

not an entity is a ‘‘deposit broker,’’ 

including, for example, whether or not 

the entity receives fees from IDIs based 

upon the volume of deposits placed and 

whether the entity provides marketing 

or referral services on behalf of the IDIs. 

In the Brokered Deposits NPR, the 

FDIC proposed a new framework for 

analyzing the deposit broker definition 

in an effort to provide clarity around 

when a third party meets the definition. 

In this context, the FDIC described the 

circumstances under which a third 

party would be: 

Æ Engaged in the business of placing 

deposits; 

Æ engaged in the business of 

facilitating the placement of deposits; 

and 

Æ engaged in the business of placing 

deposits with insured depository 

institutions for the purpose of selling 

interests in those deposits to third 

parties. 


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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 6745 

In general, commenters raised 

concerns that the proposed deposit 

broker definition was overly broad and 

would create barriers to innovation. 

Commenters also argued that the listed 

activities in the proposal, specifically in 

the proposed ‘‘facilitation’’ definition, 

would capture many third party service 

providers and would prevent 

community banks from using those 

providers for any purpose without 

having the deposits be classified as 

brokered. Commenters also requested 

that the definition be further narrowed 

and that the FDIC identify specific 

activities in which a person could 

engage without being a deposit broker. 

The specific issues raised by 

commenters are summarized below. 

a. Exclusive Deposit Placement 

Arrangements 

Section 29 provides that a person 

meets the ‘‘deposit broker’’ definition 

(as described above) when it is 

‘‘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’’ (emphasis added). The 

FDIC recognizes that a number of 

entities, including some financial 

technology companies, partner with one 

insured depository institution to 

establish exclusive deposit placement 

arrangements. Under these 

arrangements, the third party has 

developed an exclusive business 

relationship with the IDI and, as a 

result, is less likely to move its customer 

funds to other IDIs in a way that makes 

the deposits less stable. 

As such, in an effort to clarify the 

types of persons that meet the ‘‘deposit 

broker’’ definition, and consistent with 

the statute, under this final rule, any 

person that has an exclusive deposit 

placement arrangement with one IDI, 

and is not placing or facilitating the 

placement of deposits at any other IDI, 

will not be ‘‘engaged in the business’’ of 

placing, or facilitating the placement of, 

deposits and therefore will not meet the 

‘‘deposit broker’’ definition. 

This change is also intended to 

address comments, further described 

below, that the FDIC would be 

inundated with applications from banks 

and third parties seeking the primary 

purpose exception under the proposed 

application process. 

The FDIC notes, however, that a 

person that creates or utilizes multiple 

entities that each place deposits at 

different IDIs to evade this rule, while 

still maintaining a relationship with one 

or more of such entities, will 

collectively still be viewed as one 

‘‘person’’ and thus qualify as a deposit 

broker. 

b. Engaged in the Business of Placing 

Deposits 

The statute provides that a person 

meets the definition of ‘‘deposit broker’’ 

if the person is ‘‘engaged in the business 

of placing deposits’’ on behalf of a third 

party (i.e., a depositor) at insured 

depository institutions. As provided in 

the proposed rule, the FDIC considers a 

person to be engaged in the business of 

placing deposits if that person has a 

business relationship with its 

customers, and as part of that 

relationship, places deposits with IDIs 

on behalf of the customer (e.g., acting as 

custodian or agent for the underlying 

depositor). 

Commenters suggested that the FDIC 

provide additional clarity to this part of 

the ‘‘deposit broker’’ definition with one 

commenter suggesting that the FDIC 

include the description provided above 

in the final rule text, which the FDIC 

agrees would provide clarity. As such, 

the FDIC is amending the ‘‘deposit 

broker’’ definition in the final rule by (1) 

including that the person must have a 

business relationship with its customers 

to be ‘‘engaged in business’’ and (2) 

providing that the person must receive 

customer funds before placing deposits 

to satisfy the ‘‘engaged in the business 

of placing deposits’’ part of the 

definition. 

c. Engaged in the Business of 

Facilitating the Placement of Deposits 

In contrast to the first part of the 

deposit broker definition, the 

‘‘facilitation’’ part of the definition 

refers to activities where the person 

does not directly place deposits on 

behalf of its customers with insured 

depository institutions. Historically, the 

term ‘‘facilitating the placement of 

deposits’’ has been interpreted by staff 

at the FDIC to include actions taken by 

third parties to connect insured 

depository institutions with potential 

depositors. 

Under the proposed rule, a person 

would meet the ‘‘facilitation’’ prong of 

the ‘‘deposit broker’’ definition by, 

while engaged in business, engaging in 

any one, or more than one, of the 

following activities: 

Æ The person directly or indirectly 

shares any third party information with 

the insured depository institution; 

Æ The person has legal authority, 

contractual or otherwise, to close the 

account or move the third party’s funds 

to another insured depository 

institution; 

Æ The person provides assistance or 

is involved in setting rates, fees, terms, 

or conditions for the deposit account; 

or, 

Æ The person is acting, directly or 

indirectly, with respect to the placement 

of deposits, as an intermediary between 

a third party that is placing deposits on 

behalf of a depositor and an insured 

depository institution, other than in a 

purely administrative capacity. 

i. Comments in Response to the 

Proposed ‘‘Facilitation’’ Definition 

The FDIC sought to provide clarity 

and consistency with respect to what it 

means to facilitate the placement of 

deposits. The proposed ‘‘facilitation’’ 

definition was the issue that received 

the most comments; of the 166 comment 

letters received (47 of which were form 

letters), 118 commented on the 

proposed definition. 

In general, commenters raised 

concerns that some of the listed 

activities in the proposal were overly 

broad and, as proposed, would result in 

all deposits sourced through some use 

of third party service providers to be 

classified as brokered. Some 

commenters suggested that all 

‘‘relationship accounts’’ and transaction 

accounts ‘‘owned by a bank’’ with no 

direct relationship between the third 

party and the depositor should be 

exempt from the definition of 

‘‘facilitating.’’ Below is a summary of 

the comments received on each of the 

four prongs of the proposed 

‘‘facilitation’’ definition. 

First Prong. Numerous commenters 

raised concerns about this first prong of 

the definition of ‘‘facilitating,’’ related to 

information sharing. Major trade 

associations representing the banking 

industry suggested that the FDIC delete 

the information sharing prong entirely 

and focus instead on the extent to which 

a third party exercises control over the 

account. A law firm commented that the 

first prong would capture the core 

activities of essentially every financial 

technology company or technology 

platform solutions provider performed 

for or on behalf of depository 

institutions, since many financial 

technology companies receive and store 

consumers’ credentials and share 

verified consumer information with a 

depository institution. The commenter 

expressed that an essential factor 

underlying the ‘‘facilitation’’ activities is 

whether the person in question is acting 

on behalf of the bank or on behalf of the 

depositor. The commenter stated that 

where a person is acting on behalf of 

and at the direction of the depositor, 

that person’s activities should not be 

viewed as ‘‘facilitation’’ activities 


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6746 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 

because no services are being provided 

to a particular depository institution. 

One company suggested that the 

proposed definition of ‘‘facilitating the 

placement of deposits’’ should be 

revised to exclude third-parties who 

provide services to banks for the 

purpose of enabling the bank to 

establish deposit accounts directly with 

individual depositors. 

A number of commenters, including 

bankers, a law firm, a trade association, 

and private companies, raised a specific 

concern that the ‘‘information sharing’’ 

prong of the definition could be 

interpreted to include listing services, 

which historically have been viewed by 

FDIC staff as excluded from being 

considered deposit brokers under 

certain circumstances. Several other 

bankers expressed similar views, 

arguing that entities that simply provide 

information, such as listing services, 

should not be considered deposit 

brokers and that the definition as 

proposed could lead to such a result. 

Second Prong. A number of 

commenters expressed support for the 

second prong to the proposed 

‘‘facilitation’’ definition, which 

included activities where the person has 

legal authority, contractual or otherwise, 

to close the account or move the third 

party’s funds to another insured 

depository institution. Specifically, 

commenters stated that this activity is 

indicative of the type of active and 

meaningful relationship that should be 

required to find that a third party is 

facilitating the placement of deposits 

under the deposit broker definition. One 

commenter asked that the FDIC limit the 

second prong to include exclusive legal 

authority over the movement of funds. 

Third Prong. Commenters expressed 

concerns with the proposed third prong 

of the facilitation definition, believing 

that the definition was overly broad, 

contained unnecessary terms, and 

would capture services the FDIC did not 

intend to capture. Some community 

bankers believed that the proposed third 

prong would result in classifying service 

providers that provide assistance (but 

not the final determination) in setting 

rates, fees, terms or conditions for 

various deposit account programs, as 

deposit brokers. Other commenters 

mentioned that the phrase ‘‘providing 

assistance’’ was unnecessary and 

ambiguous and should be deleted from 

the final rule. The commenters 

explained that because the proposed 

rule would cover anyone ‘‘involved in’’ 

setting rates, fees, terms or conditions, 

the term ‘‘providing assistance’’ would 

only create ambiguity and could be read 

more broadly. 

Some commenters believed that the 

overly broad definition could include 

listing services. However, one 

commenter believed that listing services 

should be included in the third prong 

and cited legislative history to support 

its position. Lastly, commenters 

mentioned that the definition could be 

used to capture a bank’s use of 

consulting or advisory services that 

assist them with developing, delivering 

and improving their deposit offerings. 

Fourth Prong. A number of 

commenters expressed concerns that the 

proposed fourth prong of the definition 

of ‘‘facilitation,’’ which excluded 

persons involved in a purely 

administrative capacity, was also 

ambiguous and should be clarified by 

providing a list of activities that would 

be considered to be purely 

administrative. A law firm commented 

that the FDIC should clarify its intent 

with respect to the exclusion for ‘‘purely 

administrative’’ conduct, and argued 

that a third party conducting only 

administrative functions should be 

permissible without the third party 

being considered a deposit broker. A 

trade association suggested that the 

FDIC provide that an intermediary 

between an IDI and a third party placing 

deposits is not ‘‘facilitating’’ if the third 

party is itself not a deposit broker and 

if the third party would not be a deposit 

broker if performing the intermediary’s 

activities itself regardless of whether 

those activities were ‘‘purely 

administrative.’’ 

ii. Final Rule Discussion for 

‘‘Facilitation’’ Definition 

The FDIC is adopting the general 

approach taken in the proposed rule 

with respect to the ‘‘facilitation’’ part of 

the deposit broker definition, but is 

making certain revisions to the 

definition. Under the final rule, a person 

is engaged in the business of facilitating 

the placement of deposits if that person 

is engaged in certain activities with 

respect to deposits placed at more than 

one IDI. The activities that result in a 

person being ‘‘engaged in the business 

of facilitating the placement of 

deposits,’’ as discussed in the proposed 

rule, is intended to capture activities 

that indicate that the third party takes 

an active role in the opening of an 

account or maintains a level of 

influence or control over the deposit 

account even after the account is open. 

Having a certain level of influence over 

account opening, or retaining a level of 

control over the movement of customer 

funds after the account is open, 

indicates that the deposit relationship is 

between the depositor and the person 

rather than the depositor and the 

insured depository institution. 

Moreover, when a third party can 

influence a depositor to either open the 

account with a particular insured 

depository institution or move funds 

between insured depository institutions, 

the deposits tend to be less stable than 

if the deposits were brought to the 

insured depository institution through a 

single point of contact where that 

contact does not have influence over the 

movement of deposits between insured 

depository institutions. 

Consistent with this approach to 

defining the ‘‘facilitating’’ part of the 

deposit broker definition, and in 

response to issues raised by 

commenters, the final rule provides that 

if a person engages in any one of the 

following activities, while engaged in 

business, the person will be a deposit 

broker and any deposits placed by the 

person will be brokered: 

• The person has legal authority, 

contractual or otherwise, to close the 

account or move the third party’s funds 

to another insured depository 

institution; 

• The person is involved in 

negotiating or setting rates, fees, terms, 

or conditions for the deposit account; or 

• The person engages in 

matchmaking, as defined in the rule. 

Proposed Information Sharing Prong 

The FDIC is not retaining the first 

proposed prong of the ‘‘facilitation’’ 

definition. The FDIC agrees with 

commenters that the ‘‘direct or indirect 

sharing of customer information’’ is 

overly broad and could have the 

unintended effect of capturing persons 

that do not have influence or control 

over the placement of deposits. The 

proposed first prong was generally 

intended to capture activities where the 

person shares information in an effort to 

match prospective depositors with 

particular banks, and that specific 

activity, as part of the final rule, will 

now be included in the matchmaking 

prong of the facilitation definition 

discussed below. 

Legal Control 

The FDIC is finalizing the proposed 

prong relating to legal control over the 

account as part of the ‘‘facilitation’’ 

definition. Although one commenter 

suggested that having legal control of 

moving customer funds was too broad, 

many commenters supported this 

criterion’s inclusion in the ‘‘facilitation’’ 

definition. The FDIC believes that the 

activity clearly demonstrates that a third 

party has meaningful, substantial 

influence or control over an account 

and, therefore, is acting as a deposit 

broker. 


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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 6747 

20See FDIC Federal Register Citations, Unsafe 

and Unsound Banking Practices: Brokered Deposits 

Restrictions—Comments and Staff Disclosures, 

available at: https://www.fdic.gov/regulations/laws/ 

federal/2020/2020-unsafe-unsound-bankingpractices-brokered-deposits-3064-ae94.html. 

21 In the final rule, this activity will be included 

in the second prong of the facilitation definition. 

22For ease of reference, the ‘‘depositor’s agent’’ in 

the ‘‘matchmaking’’ definition in 12 CFR 

337.6(a)(5)(iii)(C) is referred to here as the ‘‘third 

party’’. 

23This view aligns with the FDIC’s intent not to 

disrupt business arrangements that have existed for 

a number of years in reliance on prior staff guidance 

related to affiliate sweep arrangements, when the 

resulting adjustments to business operations would 

be solely for the purpose of complying with 

regulatory changes. 

24See section I(C)(2)(b)(ii)(F) for further 

discussion of the treatment of additional third 

parties who may qualify as a deposit broker. 25See section I(C)(5) for further discussion of 

listing services. 

Setting Rates, Terms, Conditions 

With respect to the proposed third 

prong, commenters viewed that 

providing assistance with setting rates, 

terms, or conditions would be overinclusive and capture consulting or 

advisory services that assist banks in 

improving their deposit offerings. As 

provided in a staff memorandum to the 

Brokered Deposits NPR comment file,20

certain activities such as market 

research, general consulting or advisory 

services, and advertising by including a 

link on a website, were not intended to 

be included in the third prong of the 

proposed facilitation definition. As 

such, the FDIC is revising this prong to 

clarify that it only includes activities 

where a third party is negotiating or 

setting rates, terms, or conditions for a 

particular deposit product (on behalf of 

a particular depositor or particular 

banks).21 By striking the ‘‘providing 

assistance’’ factor, this revised prong 

will appropriately capture third parties 

that influence or control the placement 

of deposits by negotiating deposit terms 

between depositors and insured 

depository institutions. 

Providing Matchmaking Services 

Finally, the FDIC is incorporating 

concepts from the proposed first prong 

(‘‘information sharing’’) and the 

proposed fourth prong with the new 

third prong to provide a clear 

description of the types of activities that 

were intended to be captured under the 

facilitation definition. 

This prong in the final rule will 

capture persons that engage in 

matchmaking. The final rule will define 

matchmaking as follows: 

Æ A person is engaged in 

matchmaking if the person proposes 

deposit allocations at, or between, more 

than one bank based upon both (a) the 

particular deposit objectives of a 

specific depositor or depositor’s agent, 

and (b) the particular deposit objectives 

of specific banks, except in the case of 

deposits placed by a depositor’s agent 

with a bank affiliated with the 

depositor’s agent. A proposed deposit 

allocation is based on the particular 

objectives of: 

Æ A depositor or depositor’s agent 

when the person has access to specific 

financial information of the depositor or 

depositor’s agent and the proposed 

deposit allocation is based upon such 

information; and 

Æ a bank when the person has access 

to specific information of the depositbalance objectives of the bank and the 

proposed deposit allocation is based 

upon such information. 

Specifically, this prong captures 

certain entities that utilize their 

relationships with prospective 

depositors or depositor’s agents and 

banks to propose deposit allocations at 

particular banks. These activities 

indicate that the person has influence 

over the movement of deposits between 

insured depository institutions. These 

activities also indicate that the person is 

not only satisfying the deposit 

objectives of the depositor or its agent 

but also of the insured depository 

institution. Such a relationship could 

allow less than well capitalized 

institutions to utilize a third party to bid 

for considerable volumes of funding, 

quickly, which could present 

heightened risks to the DIF. 

Additionally, such a relationship could 

increase the likelihood of a third party 

withdrawing funds from a less than well 

capitalized institution (or under other 

circumstances, such as in the event an 

institution is the subject of an 

enforcement action), which could 

present sudden liquidity concerns. 

This prong would not include persons 

that engage in activities that would 

otherwise satisfy the matchmaking 

prong if, and to the extent that, these 

activities are conducted between a bank 

and an affiliated third party.22 With 

respect to this specific function, the 

FDIC views such services by an 

intermediary as administrative in nature 

due to the direct relationship between 

the person placing the deposits and the 

bank.23 However, deposits placed at 

banks, with the assistance of persons 

engaging in matchmaking activities, by 

an affiliated third party that meets the 

deposit broker definition would be 

brokered. 

This prong will include third parties 

that engage in matchmaking as part of 

an unaffiliated deposit sweep program 

between a depositor, its broker dealer, 

and various unaffiliated banks. These 

third parties propose deposit allocations 

by matching the deposit obligations of 

either the depositor(s) or the broker 

dealers with the target deposit balances 

of various unaffiliated banks. It may be 

the case that a third party with a 

primary purpose exception sweeps 

deposits to an affiliated IDI, and those 

sweep deposits would not be brokered, 

while the same third party uses an 

intermediary that would qualify as a 

deposit broker under this prong in the 

placement of deposits at unaffiliated 

IDIs, in which case those deposits 

would be brokered.24

The third prong will not include third 

parties that provide administrative 

services as part of a deposit sweep 

program between a depositor, its broker 

dealer, and unaffiliated banks. In these 

cases, the third party may assist in the 

placement of sweep deposits with 

unaffiliated banks but does not propose 

deposit allocations, as described above. 

The third prong is defined to capture 

specific forms of matchmaking that are 

active in nature; more passive forms of 

matching depositors and banks, such as 

those in which traditional listing 

services often engage, would not be 

captured.25

Unlike the fourth prong of the 

proposed rule, the final rule will not 

distinguish between the activities of a 

person that interfaces directly with a 

depositor and the activities of a person 

that interfaces with an intermediary or 

a depositor’s agent. Rather, the 

facilitation definition, and its three 

criteria, will apply, generally, to any 

third party that plays a role in the flow 

of funds between a prospective 

depositor and the opening of a deposit 

account at an insured depository 

institution. 

Anti-Evasion. It may be possible for 

an entity that meets the matchmaking 

prong to modify its business 

arrangements in such a way that evades 

the terms of the regulation while 

maintaining effectively the same 

business relationships. The FDIC has 

included in the regulation an antievasion provision that would allow the 

FDIC to determine that such attempts to 

evade the matchmaking prong still meet 

the matchmaking prong. The purpose of 

the anti-evasion authority is not to 

capture an entity that restructures it 

business in such a manner that it is no 

longer engaged in the type of 

matchmaking captured by the rule, but 

rather to avoid creating an unintended 

incentive for entities to modify or 

restructure businesses solely to evade 

the regulation. In this regard, the FDIC 

expects to use this authority sparingly. 


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6748 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 

26 84 FR 2366, 2370 (Feb. 6, 2019). 27 12 U.S.C. 1831f((g)(2)(A)–(B). 

To provide an example, in the event 

that a third party that would otherwise 

satisfy the criteria of the matchmaking 

prong sells or licenses software that 

provides deposit placement or 

allocation services between depositors 

or banks in a manner that is intended 

to evade this prong, and continues to 

play an ongoing role in providing the 

matchmaking function, the deposits 

placed through the assistance of the 

software may be considered brokered. 

Conversely, in the event that a third 

party sells or licenses software that 

provides deposit placement or 

allocation services between depositors 

or banks and does not subsequently play 

an ongoing role in providing any 

function related to matchmaking, then 

the deposits placed would not be 

considered brokered. As such, whether 

a third party meets the matchmaking 

prong will, under the anti-evasion 

provision, depend in part on whether 

the third party continues to play an 

ongoing role in providing functions 

related to matchmaking. 

d. Engaged in the Business of Placing 

Deposits With Insured Depository 

Institutions for the Purpose of Selling 

Interests in Those Deposits to Third 

Parties 

i. Overview and Proposal 

The third part of the ‘‘deposit broker’’ 

definition includes a person ‘‘engaged 

in the business of placing deposits with 

insured depository institutions for the 

purpose of selling interests in those 

deposits to third parties.’’ As provided 

in the proposed rule, this part of the 

definition specifically captures the 

brokered certificates of deposit (CD) 

market (referred to herein as ‘‘brokered 

CDs’’). These are typically deposit 

placement arrangements where brokered 

CDs are issued in wholesale amounts by 

a bank seeking to place funds under 

certain terms and sold through a 

registered broker-dealer to investors, 

typically in fully insured amounts. 

ii. Final Rule Discussion of Brokered 

CDs 

In response to the proposal, a 

commenter clarified that the current 

brokered CD market operates in a 

manner different than as described in 

the notice of proposed rulemaking. 

Rather than being arrangements in 

which institutions issue a brokered CD 

in a wholesale amount in the name of 

a broker dealer, who then sells 

participations in the wholesale CD, in 

current financial markets, an insured 

depository institution issues a master 

CD in the name of the third party that 

has organized the funding of the CD, or 

in the name of a custodian or a subcustodian of the third party. The 

certificate is funded by individual 

depositors through the third party, with 

each individual depositor receiving an 

ownership interest in the certificate that 

is reflected on the books and records of 

the third party in a manner to permit 

pass-through treatment for purposes of 

deposit insurance for the individual 

depositors. The FDIC acknowledges that 

the brokered CD market has evolved, in 

part, to ensure that its underlying 

depositors receive pass-through deposit 

insurance and to allow the beneficial 

owners of the deposits to trade their 

accounts in a secondary market 

maintained by the broker. 

Nevertheless, under the final rule, 

without exception, and as further 

explained below in the section 

discussing the primary purpose 

exception, brokered CDs continue to be 

classified as brokered. Brokered CDs, 

which were offered well before Section 

29 of the FDI Act was enacted, were 

specifically intended to be included as 

part of the statute. Moreover, and as 

provided in the ANPR, brokered CDs 

have caused significant losses to the 

DIF.26 Regardless of any future 

innovations and re-structuring in the 

brokered CD market, the FDIC intends 

that third parties that assist in the 

placement of brokered CDs, or any 

similar deposit placement arrangement 

with a similar purpose, will continue to 

be considered deposit brokers under 

this part of the deposit broker 

definition. 

This final rule revises the proposed 

definition of a brokered CD in part 303 

to more accurately reflect the current 

marketplace. 

2. Exceptions to the ‘‘Deposit Broker’’ 

Definition 

Section 29 provides nine statutory 

exceptions to the definition of deposit 

broker and, as described earlier, the 

FDIC established one regulatory 

exception to the definition. In the 

proposal, the FDIC proposed amending 

two exceptions—(1) the exception for an 

insured depository institution, with 

respect to funds placed with that 

depository institution (the ‘‘IDI 

exception’’) and (2) the exception for an 

agent or nominee whose primary 

purpose is not the placement of funds 

with depository institutions (the 

‘‘primary purpose exception’’). In 

response to comments, as described 

below, the final rule makes revisions to 

both exceptions. 

a. Bank Operating Subsidiaries and the 

IDI Exception 

Under the IDI Exception, an IDI is not 

considered to be a deposit broker when 

it places (or its employees place) funds 

at the bank.27 As provided in the 

proposed rule, the IDI Exception 

applies, for example, in the case of a 

division of an IDI that places deposits 

exclusively with the parent IDI, but does 

not apply if a separately incorporated 

subsidiary of the IDI places deposits 

exclusively with the parent. However, 

the FDIC proposed changes to expand 

the IDI exception to permit wholly 

owned subsidiaries that meet certain 

criteria to be eligible for the exception. 

In doing this, the FDIC recognized that 

a wholly owned operating subsidiary 

that meets certain criteria can be 

considered similar to a division of an 

IDI for certain purposes. 

i. Comments Received in Response to 

the IDI Exception 

Of those who commented on this 

aspect of the proposed rule, a majority 

were in favor of the expansion of the 

exception to include wholly owned 

subsidiaries. Many also argued that the 

exception should be further broadened, 

so as to allow affiliates, in addition to 

wholly owned subsidiaries, to also fit 

within the exception (although one 

commenter expressly stated that it 

should not be further expanded in this 

way). Those who argued for further 

expansion suggested that there is little 

practical difference between a wholly 

owned subsidiary and an affiliate and 

that deposits placed through an affiliate 

were not ‘‘hot’’ money that should be 

considered to be a brokered deposit. 

Some commenters also asked the FDIC 

to clarify how ‘‘dual-hatted’’ or ‘‘dualemployees’’ would be treated as part of 

the new regulation. 

ii. Final Rule Discussion for the IDI 

Exception 

The final rule is not adopting the 

proposed changes to the IDI exception. 

Under this final rule, the deposit broker 

definition does not include third parties 

that have an exclusive deposit 

placement arrangement with one 

insured depository institution. As a 

result, the proposed expansion of the 

IDI exception to wholly owned 

subsidiaries is no longer necessary. This 

is because, under the proposal, in order 

to meet the IDI exception, a wholly 

owned subsidiary would have to place 

deposits exclusively with the parent IDI 

among other conditions. As such, 

wholly owned subsidiaries that would 

have met the proposed IDI exception 


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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 6749 

28 12 U.S.C. 1831(g)(4). 

29Under the proposal, the FDIC only would have 

considered fees, interest, or other remuneration 

paid to the underlying depositor. 

will not meet the ‘‘deposit broker’’ 

definition under this final rule because 

they have an exclusive deposit 

placement arrangement with one bank, 

their parent bank. 

In response to comments regarding 

the status of ‘‘dual-hatted’’ or ‘‘dual’’ 

employees under the final rule, the 

FDIC notes that the statutory 

‘‘employee’’ exception applies solely to 

an ‘‘employee’’ who satisfies the 

definition of an employee provided by 

the statute. The statute defines an 

‘‘employee’’ as any employee: ‘‘(i) who 

is employed exclusively by the insured 

depository institution; (ii) whose 

compensation is primarily in the form of 

a salary; (iii) who does not share such 

employee’s compensation with a 

deposit broker; and (iv) whose office 

space or place of business is used 

exclusively for the benefit of the insured 

depository institution, which employs 

such individual.’’ 28 This exception does 

not apply to a contractor or dual 

employee because they are not 

employed exclusively by insured 

depository institutions. The exception 

would, however, apply to ‘‘dual-hatted’’ 

employees that are employed 

exclusively by the bank so long as the 

employees meet each of the other 

statutory elements of the ‘‘employee’’ 

definition. 

b. Primary Purpose Exception 

i. Overview of Proposal and Comments 

Section 29 provides that the primary 

purpose exception applies to ‘‘an agent 

or nominee whose primary purpose is 

not the placement of funds with 

depository institutions.’’ In the Brokered 

Deposits NPR, the FDIC proposed a new 

interpretation for the primary purpose 

exception based on the relationship 

between the agent or nominee and its 

customers. Specifically, the primary 

purpose exception would apply when 

the primary purpose of the agent’s or 

nominee’s business relationship with its 

customers is not the placement of funds 

with depository institutions. 

Along with the new interpretation, 

the FDIC proposed a new framework for 

evaluating business relationships that 

may meet the primary purpose 

exception and identified two types of 

relationships that would be deemed to 

qualify for the exception. Under the 

proposal, the FDIC would evaluate 

whether a particular business 

relationship meets the primary purpose 

exception through an application 

process, available to both IDIs and third 

parties. The proposed application 

process was intended to allow the FDIC 

to ensure that the applicant met the 

relevant criteria for the exception and to 

promote transparency and consistency 

for applicants. The proposal also 

established an ongoing reporting 

process for approved applicants. 

General Comments. In response to the 

proposed framework, many commenters 

suggested that the FDIC (1) establish 

more bright-line tests, or business 

arrangements, that qualify for the 

primary purpose exception, and (2) 

eliminate the application process, or 

revise it to create a more streamlined 

process. Commenters generally argued 

that if the FDIC identified more brightline tests, or business relationships, 

with respect to the primary purpose 

exception then there would be little, if 

any, need for an application process. 

Two commenters were critical of the 

proposed changes to the definition of 

the primary purpose exception. In 

particular, one commenter stated the 

proposed changes would invite evasion 

and create opportunities for nonbanks 

instead of protecting the DIF. The 

commenter believed that the primary 

purpose exception should be based on 

the primary purpose of deposits, not the 

purpose of the agent and its customer. 

Another commenter stated that the 

proposal reflected rulemaking centered 

on non-bank third parties, whereas the 

FDIC’s mandate and responsibilities 

direct the agency to focus on IDIs that 

it insures and supervises. 

One commenter representing large 

financial institutions suggested that 

bright-line criteria will be more efficient 

because banks can evaluate their 

individual circumstances for a primary 

purpose exception and not have to wait 

for the FDIC’s approval. The commenter 

stated that the banks would make good 

faith determinations that would be 

subject to review in the examination 

process. The commenter, and several 

others, raised concerns that, unless the 

FDIC eliminates or revises the proposed 

application process, the FDIC would be 

inundated with applications from banks 

and third parties seeking the primary 

purpose exception. 

Primary purpose exception based on 

25 percent test. In addition to the 

general comments about the overall 

framework for evaluating primary 

purpose exceptions, the FDIC also 

received numerous comments on the 

proposed primary purpose exception for 

entities placing less than 25 percent of 

customer assets under management with 

insured depository institutions (the ‘‘25 

percent’’ test or business relationship). 

Most of those comments sought 

additional clarity as to the definitions of 

‘‘business line’’ and ‘‘customer assets 

under management.’’ One commenter 

noted that the phrase ‘‘customer assets 

under management’’ is a term of art in 

securities law and limited in use for 

broker dealers or investment advisors, 

which the commenter suggested could 

lead to confusion and limit the scope of 

the exception. At least one commenter 

suggested that the threshold be raised to 

50 percent, while another suggested that 

the 25 percent threshold was too high 

and would allow significant amounts of 

deposits to flow to IDIs without 

restricting business models that create 

risk. 

Primary purpose exception based on 

enabling transactions. In the Brokered 

Deposits NPR, the FDIC proposed a 

second business relationship that would 

meet the proposed primary purpose 

exception for parties that place funds at 

depository institutions for the purpose 

of enabling transactions (the ‘‘the 

enabling transactions’’ test or business 

relationship). The FDIC received 

comments suggesting that the FDIC 

provide clarity regarding the terms 

‘‘enabling transactions’’ and 

‘‘transaction account’’ to further clarify 

the types of deposit arrangements that 

would meet the exception. Other 

commenters indicated that the existence 

of some fees, remuneration, or interest 

paid, should not prevent an entity from 

being eligible for the primary purpose 

exception. One commenter noted that 

receiving a fee for wire transfer 

processing or other related transaction 

services does not necessarily transform 

a third party’s primary intent from 

processing ordinary business 

transactions into deposit placement 

activity.29

Application process. For both the 25 

percent and the enabling transactions 

business relationships, the FDIC 

proposed an application process 

through which applicants would 

demonstrate that they meet the criteria 

for the particular exception and the 

FDIC, on an expedited basis, would 

review and approve the application. 

Commenters who addressed this process 

were critical, suggesting that, at least for 

the two business relationships that meet 

the criteria set forth in the proposal, at 

most a notice requirement should exist. 

Commenters raised concerns about 

FDIC’s ability to evaluate so many 

applications in a timely manner and 

suggested that the FDIC could evaluate 

the business relationships as part of an 

examination rather than requiring 

approval in advance. 

Other business relationships. As 

noted above, the FDIC also proposed 


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6750 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 

30Additional discussion regarding the concept of 

a ‘‘business line’’ is provided in section 

I(C)(2)(b)(ii)(E). 

31The FDIC recognizes that some of these 

arrangements may be between an agent or nominee 

and one insured depository institution. Under this 

final rule, if the agent or nominee has an exclusive 

deposit placement arrangement with one IDI, and 

does not place or facilitate the placement of 

deposits at any other IDI, then it will not meet the 

‘‘deposit broker’’ definition. 

that parties that did not qualify under 

either the ‘‘25 percent’’ business 

relationship or the ‘‘enabling 

transactions’’ business relationship 

could apply for a primary purpose 

exception. A number of commenters 

raised concerns about the application 

process, in some cases arguing it should 

be eliminated and in most cases stating 

that it would be too cumbersome and 

time consuming both for the applicants 

and for the FDIC to evaluate the 

applications in a timely manner. 

Commenters suggested that the FDIC 

instead should establish additional 

‘‘bright-line’’ categories of business 

arrangements that are eligible for the 

primary purpose exception, which 

would largely obviate the need for an 

application process aside from entities 

that did not fit within one of the 

predetermined business relationships. 

Specifically, commenters noted that 

some business arrangements have been 

provided the primary purpose exception 

in the past via staff advisory opinions, 

and that such arrangements should also 

be included in the list of arrangements 

that are deemed to meet the primary 

purpose exception. 

ii. Primary Purpose Exception in the 

Final Rule 

As described below, and in response 

to the comments, the final rule retains 

the proposal’s interpretation of the 

primary purpose exception and revises 

the proposed framework for the primary 

purpose exception in several ways. Like 

in the proposal, the primary purpose 

exception, in the final rule, will apply 

when, with respect to a particular 

business line, the primary purpose of 

the agent’s or nominee’s business 

relationship with its customers is not 

the placement of funds with depository 

institutions. Whether an agent or 

nominee qualifies for the primary 

purpose exception will be based on an 

analysis of the agent’s or nominee’s 

relationship with those customers. 

However, the FDIC agrees with 

commenters that the proposed 

application process for business 

relationships that the FDIC designates as 

meeting the primary purpose exception 

is not necessary. 

In the final rule, the FDIC (1) 

identifies several, specific business 

relationships as meeting the primary 

purpose exception, described as 

‘‘designated exceptions,’’ and (2) allows 

agents or nominees that do not meet one 

of these designated exceptions to apply 

for a primary purpose exception. 

Business relationships that qualify for a 

designated exception will not be 

required to go through the application 

process. For two of the designated 

exceptions, the FDIC will require a 

notice, while for the other designated 

exceptions, no notice, application, or 

reporting will be required. Under the 

final rule, entities that do not meet one 

of the designated exception may apply 

for a primary purpose exception. The 

final rule will also authorize the FDIC 

to identify additional relationships as 

designated exceptions to the primary 

purpose exception (and therefore will 

not require an application). 

The FDIC also notes that certain 

agents or nominees may only place 

deposits at one IDI, in which case the 

agent or nominee would not be a 

deposit broker, regardless of whether 

the agent or nominee satisfies the 

primary purpose exception. However, 

the FDIC notes that if an agent or 

nominee places deposits at one IDI as 

part of one business line,30 such as part 

of a sweep program, and places deposits 

at one or more other IDIs as part of one 

or more other business lines, such as 

issuing brokered CDs, that agent or 

nominee would still qualify as a deposit 

broker unless it satisfied the primary 

purpose exception, with respect to a 

particular business line, or one of the 

other nine exceptions to the definition 

of ‘‘deposit broker.’’ 

A. Designated Exceptions 

In the final rule, the FDIC recognizes 

a number of business relationships, 

known as ‘‘designated exceptions,’’ 

described below, as meeting the primary 

purpose exception. Two of these 

relationships are the relationships 

described in the proposal as business 

relationships deemed to meet the 

primary purpose exception—the ‘‘25 

percent’’ business relationship and the 

‘‘enabling transactions’’ business 

relationship. Unlike in the proposal, 

these two relationships will not be 

required to go through the application 

process, and instead will only require a 

notice. The final rule also adds a 

number of designated exceptions that 

will neither require a notice nor an 

application. The additional designated 

exceptions include business 

relationships that have previously been 

viewed by staff at the FDIC as meeting 

the primary purpose exception, and 

were evaluated as part of this 

rulemaking process to meet the primary 

purpose exception under the 

interpretation of the exception adopted 

in this final rule, as well as certain 

business arrangements identified by 

commenters as meeting the primary 

purpose exception. The following 

business relationships are identified as 

designated exceptions under the final 

rule: Business relationships in which, 

with respect to a particular business 

line: 31

(1) Less than 25 percent of the total 

assets that the agent or nominee has 

under administration for its customers 

is placed at depository institutions; 

(2) 100 percent of depositors’ funds 

that the agent or nominee places, or 

assists in placing, at depository 

institutions are placed into transactional 

accounts that do not pay any fees, 

interest, or other remuneration to the 

depositor; 

(3) a property management firm 

places, or assists in placing, customer 

funds into deposit accounts for the 

primary purpose of providing property 

management services; 

(4) the agent or nominee places, or 

assists in placing, customer funds into 

deposit accounts for the primary 

purpose of providing cross-border 

clearing services to its customers; 

(5) the agent or nominee places, or 

assists in placing, customer funds into 

deposit accounts for the primary 

purpose of providing mortgage 

servicing; 

(6) a title company places, or assists 

in placing, customer funds into deposit 

accounts for the primary purpose of 

facilitating real estate transactions; 

(7) a qualified intermediary places, or 

assists in placing, customer funds into 

deposit accounts for the primary 

purpose of facilitating exchanges of 

properties under section 1031 of the 

Internal Revenue Code; 

(8) a broker dealer or futures 

commission merchant places, or assists 

in placing, customer funds into deposit 

accounts in compliance with 17 CFR 

240.15c3–3(e) or 17 CFR 1.20(a); 

(9) the agent or nominee places, or 

assists in placing, customer funds into 

deposit accounts for the primary 

purpose of posting collateral for 

customers to secure credit-card loans; 

(10) the agent or nominee places, or 

assists in placing, customer funds into 

deposit accounts for the primary 

purpose of paying for or reimbursing 

qualified medical expenses under 

section 223 of the Internal Revenue 

Code; 

(11) the agent or nominee places, or 

assists in placing, customer funds into 

deposit accounts for the primary 


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purpose of investing in qualified tuition 

programs under section 529 of the 

Internal Revenue Code; 

(12) the agent or nominee places, or 

assists in placing, customer funds into 

deposit accounts to enable participation 

in the following tax-advantaged 

programs: Individual retirement 

accounts under section 408(a) of the 

Internal Revenue Code, Simple 

individual retirement accounts under 

section 408(p) of the Internal Revenue 

Code, and Roth individual retirement 

accounts under section 408A of the 

Internal Revenue Code; 

(13) a Federal, State, or local agency 

places, or assists in placing, customer 

funds into deposit accounts to deliver 

funds to the beneficiaries of government 

programs; and 

(14) the agent or nominee places, or 

assists in placing, customer funds into 

deposit accounts pursuant to such other 

relationships as the FDIC specifically 

identifies as a designated business 

relationship that meets the primary 

purpose exception. 

1. Deposit Placements of Less Than 25 

Percent of Customer Assets Under 

Management by the Third Party 

Under the proposal, the FDIC 

provided that the primary purpose of an 

agent’s or nominee’s business 

relationship with its customers will not 

be considered to be the placement of 

funds at a depository institution, subject 

to an application process, if less than 25 

percent of the total assets that the agent 

or nominee has under management for 

its customers, in a particular business 

line, is placed at depository institutions. 

The FDIC is finalizing the proposed 

‘‘25 percent’’ test generally as proposed 

but, in response to comments, is 

revising the phrase ‘‘assets under 

management’’ to ‘‘assets under 

administration.’’ The FDIC is also 

providing additional clarity regarding 

the concept of a ‘‘business line’’ in 

section I(C)(2)(b)(ii)(E). 

The FDIC is also reiterating for 

clarification that if more than 25 percent 

of the total customer assets that an agent 

or nominee has under administration is 

placed at depository institutions, the 

agent or nominee may still apply for a 

primary purpose exception through the 

application process described in section 

I(C)(3)(c). 

Customer assets under management. 

In response to comments indicating that 

the phrase ‘‘customer assets under 

management’’ is generally limited to 

certain broker dealer and investment 

advisor business, the FDIC is revising 

the term to ‘‘customer assets under 

administration.’’ The revised phrase 

more accurately reflects the FDIC’s 

intention that this test cover both 

customer assets managed by the agent or 

nominee and those customer assets for 

which the agent or nominee provides 

certain other services but may not 

exercise deposit placement or 

investment discretion. 

As part of the final rule, in 

determining the amount of customer 

assets under administration by an agent 

or nominee, for a particular business 

line, the agent or nominee must measure 

the total market value of all the financial 

assets (including cash balances) that the 

agent or nominee administers on behalf 

of its customers that participate in a 

particular business line. 

As a result, under the final rule, an 

agent or nominee will meet the 

designated exception if less than 25 

percent of the total assets that the agent 

or nominee has under administration for 

its customers, in a particular business 

line, is placed at depository institutions. 

2. Enabling Transactions 

Proposal. As part of the Brokered 

Deposits NPR, the FDIC also proposed 

that the primary purpose of an agent’s 

or nominee’s business relationship with 

its customers would not be considered 

to be the placement of funds if the agent 

or nominee places depositors’ funds 

into transactional accounts for the 

purpose of enabling transactions. 

Under the proposed rule, if 100 

percent of an agent’s or nominee’s 

customer funds that are placed at 

depository institutions are placed into 

transaction accounts, and no fees, 

interest, or other remuneration is 

provided to the depositor, then the 

agent or nominee would meet the 

primary purpose exception of enabling 

transactions. 

However, the FDIC also proposed that 

if the agent or nominee, or the 

depository institution, pays any sort of 

interest, fee, or provides any 

remuneration (e.g., nominal interest 

paid to the deposit account), the agent 

or nominee would still be eligible for 

the primary purpose exception, but the 

FDIC would more closely scrutinize the 

agent’s or nominee’s business to 

determine whether the primary purpose 

is truly to enable payments. The FDIC 

identified factors to be considered in 

evaluating such a scenario, including 

the number of transactions in customer 

accounts, and the interest, fees, or other 

remuneration provided, in determining 

the applicability of the primary purpose 

exception. 

Under the final rule, if an agent or 

nominee places 100 percent of its 

customer funds that have been placed at 

depository institutions, with respect to 

a particular business line, into 

transaction accounts, and no fees, 

interest, or other remuneration is 

provided to the depositor, the agent or 

nominee will meet the designated 

exception of enabling transactions. 

Entities that wish to avail themselves of 

the designated exception for ‘‘enabling 

transactions’’ would not be subject to 

the application process, as under the 

proposal, and would instead be required 

to file a notice, as detailed in section 

I(C)(3). 

Under the final rule, agents or 

nominees that place customer deposits 

at depository institutions in 

transactional accounts in which the 

customer earns some amount of interest, 

fees, or other remuneration, will 

continue to be subject to an application 

process. However, in response to 

comments that asked for more clarity on 

how these arrangements can meet the 

primary purpose exception, the 

following criteria will be considered as 

part of the application process: 

Æ The amount of interest, fees, or 

other remuneration; 

Æ The amount of transactions that 

customers make, on average, on a 

month-to-month basis; 

Æ The marketing materials provided 

by the agent or nominee indicate that 

funds placed into insured depository 

institutions are to enable transactions 

for depositors; and 

Æ If any customer funds are placed in 

deposit accounts that are not transaction 

accounts, the percentage of customer 

funds placed in deposit accounts that 

are not transaction accounts. 

To the extent an agent or nominee 

that places all customer deposits at 

depository institutions in transactional 

accounts can establish via the 

application process that it markets and 

offers its deposit placement service for 

the primary purpose of enabling 

transactions and that its customers (1) 

earn a nominal amount of interest, fees, 

or other remuneration on its deposits, 

based on the interest rate environment 

at the time, or (2) on average, make more 

than six transactions a month, then the 

FDIC will determine that the agent or 

nominee meets the primary purpose 

exception. The FDIC is providing this 

guidance in the preamble to provide 

clarity to potential applicants and to 

streamline the approval of applications 

from agents or nominees with a primary 

purpose of enabling transactions. The 

FDIC is not establishing a designated 

exception for such arrangements due to 

the lack of bright line standards for 

evaluating marketing materials and for 

defining ‘‘nominal’’ interest, fees, or 

other remuneration in different interest 


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6752 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 

32Under the final rule, the FDIC retains authority 

to determine whether a rate of interest paid is 

nominal. 

33A full discussion of that review, and the 

comments received on previous advisory opinions, 

is provided below in section I(C)(5). 

34FDIC Staff Advisory Opinion 17–02 (June 19, 

2017). 

35See FDIC Staff Advisory Opinion 16–01 (May 

19, 2016). 

rate environments.32 The FDIC is less 

likely to approve an application in 

which customers receive more than a 

nominal amount of interest, fees, or 

other remuneration on their deposits 

and, on average, make fewer than six 

transactions per month. 

If an agent or nominee that applies for 

a primary purpose exception places a 

small percentage of deposits in accounts 

that are not transaction accounts, the 

FDIC may still consider approving the 

application, depending on the facts and 

circumstances, including an analysis of 

the criteria discussed above, but will 

more closely scrutinize whether the 

primary purpose is enabling 

transactions. 

As noted in the Brokered Deposits 

NPR, and in response to commenters 

asking the FDIC to expand the proposed 

exception, the proposed exception was 

not intended to apply to all third parties 

that place deposits into accounts that 

have transactional features and is not 

intended to create an incentive for 

deposit brokers to move customers from 

time deposits to transaction accounts in 

order to evade brokered deposits 

restrictions. Rather, the proposed 

exception was intended to and will, as 

part of this final rule, apply only to 

third parties whose business purpose is 

to place funds at depository institutions 

to enable transactions or make 

payments. 

B. Additional Designated Exceptions 

As provided in the proposal, the FDIC 

indicated that it would review existing 

advisory opinions to determine those 

that should be codified in the final rule 

and those that were outdated and 

should be rescinded.33 A number of the 

staff advisory opinions related to the 

primary purpose exception, and some of 

these opinions interpreted the primary 

purpose exception as applying to certain 

third parties engaged in certain business 

arrangements. While these opinions 

were based upon an interpretation of the 

primary purpose exception that is 

different than the interpretation 

provided in this final rule, the outcome 

of whether the arrangements meet the 

primary purpose exception under the 

final rule interpretation would not 

necessarily change if evaluated under 

the revised interpretation. In an effort to 

streamline the process for determining 

whether an agent or nominee meets the 

primary purpose exception, the FDIC 

agrees with commenters that it is more 

efficient to include some of these 

arrangements as part of the bright-line 

test for the exception. In this way, 

entities that have relied upon previous 

staff opinions for the primary purpose 

exception will be able to continue to 

rely upon the exception. 

Moreover, and in response to 

comments, the FDIC is also identifying 

other business relationships that the 

FDIC believes meet the primary purpose 

exception as designated exceptions. 

Agents or nominees that qualify for a 

designated exception listed below do 

not have to file an application or notice. 

Property Management Services 

Certain property management firms 

assist clients, such as homeowner’s 

associations (‘‘HOAs’’), in managing 

their properties. These property 

management firms might place deposits 

at insured depository institutions 

because they need to deposit rent 

checks or security deposits on behalf of 

their client and may use some of those 

funds to pay for maintenance or repairs 

needed on the client’s property. Under 

the final rule, a property management 

firm that places deposits at insured 

depository institutions to provide 

property management services will be 

deemed to meet the primary purpose 

and qualify for a designated exception. 

The primary purpose of the relationship 

between a property management service 

and its customer is to manage a 

property, rather than to place funds in 

deposits accounts at IDIs.34

The FDIC also notes that companies 

that assist property management firms 

or their clients in placing funds at 

insured depository institutions to 

maximize yield or deposit insurance 

may still qualify as deposit brokers. 

These companies that either place or 

assist in placing funds would not be 

eligible for the primary purpose 

exception under this particular business 

relationship because the primary 

purpose of their deposit placement 

activity, on behalf of their client (the 

property management firm), is not to 

provide property management 

functions. 

Cross-Border Clearing Services 

Certain insured depository 

institutions provide cross-border 

clearing services for customers to 

facilitate fund or payment transfers 

where the payee and the transaction 

recipient are located in separate 

countries. Specifically, in these 

arrangements, a nonbank entity or a 

bank that does not have cross-border 

clearing capabilities places, or assists in 

placing, its customer funds into bank 

accounts at an IDI (the ‘‘clearing IDI’’) 

that acts as an intermediary to clear and 

settle the transfer of the customer’s 

funds into the transaction recipient’s 

bank account. In providing cross-border 

clearing functions, the customer’s funds 

are placed in deposit accounts at the 

clearing IDI for a very limited period of 

time and are typically disbursed to the 

recipient immediately (or almost 

immediately). 

Under these circumstances, the third 

party’s primary purpose in placing, or 

facilitating the placement of, deposits at 

the clearing IDI is to facilitate the 

clearing of payments and will be 

deemed to meet the primary purpose 

exception and qualify for a designated 

exception. This outcome is consistent 

with previous staff advisory opinions 

related to clearing services provided by 

insured depository institutions.35

The FDIC recognizes that IDIs provide 

a variety of clearing services that may be 

outside of the scope of the specific 

cross-border clearing services 

designated exception described above. 

At this point, the FDIC will evaluate 

whether these other clearing services 

provided to customers will meet the 

primary purpose exception as part of the 

application process. As described in 

section I(C)(3)(h), if the FDIC determines 

that other clearing services meet the 

primary purpose exception, then it will 

also consider whether additional 

particular clearing services should be 

identified as designated exceptions. 

Real Estate Related Transactions 

Mortgage servicing. Mortgage 

servicing rights are often sold to 

mortgage servicers that are responsible 

for the day-to-day management of a loan 

account, including collecting a 

borrower’s monthly payments of 

principal and interest and disbursing 

these funds to stakeholders pursuant to 

the terms of servicing agreements. 

Mortgage service providers also collect 

from borrower’s prepayments of each 

borrower’s respective property tax and 

property insurance premiums and hold 

such funds in escrow accounts until 

such payments are due, at which time 

they use the escrowed funds to make 

payments. As part of managing these 

services, mortgage servicers place funds 

into omnibus deposit accounts at 

insured depository institutions. The 

primary purpose of the mortgage 

servicer’s relationship with its 

customers is providing the services 

listed above related to the loan account, 


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36See generally, FDIC Staff Advisory Opinion 92– 

78 (Nov. 10, 1992); see also FDIC Staff Advisory 

Opinion 17–02 (June 19, 2017). 

37See FDIC Staff Advisory Opinion 17–02 (June 

19, 2017). 

38See id. 

39 17 CFR 240.15c3–3(e), 240.15c3–3a. The 

amount required to be held in the Special Reserve 

Account is determined pursuant to an SEC formula 

where, for each customer, the broker dealer adds up 

free credit balances and other credits in the 

account, and then reduces that number by certain 

debits. The broker dealer then aggregates the 

calculation for all customers and this aggregate 

represents the amount that a broker dealer must 

keep, in cash or qualified securities, in the Special 

Reserve Account at a bank. Id. 

‘‘Free credit balances’’ are defined as liabilities of 

a broker or dealer to customers which are subject 

to immediate cash payment to customers on 

demand, whether resulting from sales of securities, 

dividends, interest, deposits or otherwise, and can 

include funds carried in a certain securities 

account, including variation margin or initial 

margin, marks to market, and proceeds resulting 

from margin paid or released in connection with 

closing out, settling or exercising futures contracts 

and options thereon. 17 CFR 240.15c3–3(a)(8). 

40 17 CFR 240.15c3–3(e). 

41See, FDIC Staff Advisory Opinion 94–39 (Aug. 

17, 1994). To the extent that the balance of a Special 

Reserve Account is owned by the broker dealer and 

only becomes owned by its customers when a 

liquidating agent of a failed broker dealer is 

appointed and distributes the funds to all customers 

on a pro rata basis, then the broker dealer would 

not be a third party placing or facilitating the 

placement of funds of others, and would be outside 

the scope of the deposit broker definition. The FDIC 

is not addressing the ownership of Special Reserve 

Accounts in this final rule. 

42 17 CFR 1.20(a). The formula set in CFTC 

regulations calls for the amount to be maintained 

in the segregated customer account the market 

value of futures customer funds subject to certain 

adjustments. 17 CFR 1.20(i). ‘‘Futures customer 

funds’’ include all money, securities, and property 

received by a futures commission merchant from, 

for, or on behalf of, futures customers to margin, 

guarantee, or secure contracts for future delivery on 

or subject to the rules of a contract market or 

derivatives clearing organization, as the case may 

be, and all money accruing to such futures 

customers as the result of such contracts.’’ 17 CFR 

1.3. 

and not the placement of deposits at 

IDIs. Accordingly, under this final rule, 

mortgage servicers that place deposits at 

insured depository institutions to fulfill 

their obligations under servicing 

agreements meet the primary purpose 

exception and qualify for a designated 

exception. This outcome is consistent 

with previous staff advisory opinions 

related to mortgage servicers.36

Residential/Commercial Escrow 

Services. Prior to closing a real estate 

transaction, the parties involved (e.g., 

the seller and buyer) often times have 

the funds necessary to complete the 

pending real estate transaction held by 

a title insurance company in a deposit 

account at an insured depository 

institution. The purpose of having a 

third party title company hold funds in 

an escrow account is to protect the 

interests of all parties involved by 

ensuring that no funds or property will 

be transferred until every escrow term 

and condition has been met. The 

primary purpose of the third party title 

company’s relationship with its 

customers in such an arrangement is 

typically providing title services or 

facilitating the closure of the real estate 

transaction, and in any case not the 

placement of deposits at IDIs. 

Accordingly, under the final rule, title 

companies that place deposits at 

insured depository institutions to 

facilitate a real estate transaction are 

deemed to meet the primary purpose 

exception and qualify for a designated 

exception. This outcome is consistent 

with previous staff advisory opinions 

related to title companies.37

1031 Like-Kind Exchanges. Some 

deposits are placed at banks by financial 

intermediaries known as ‘‘qualified 

intermediaries’’ or ‘‘QIs.’’ Under section 

1031 of the Internal Revenue Code (26 

U.S.C. 1031), the role of a QI is to 

facilitate the exchange of ‘‘like kind’’ 

properties on behalf of clients known as 

‘‘exchangers.’’ Pursuant to a written 

agreement, the QI acquires property 

from the exchanger and then arranges 

for its resale. With the proceeds, the QI 

acquires another property and then 

transfers it to the exchanger. If the 

transaction is handled properly, the 

exchanger receives favorable tax 

treatment. 

Before the QI uses the proceeds of the 

first property to purchase the second 

property, the funds are held by the QI 

in a deposit account at a bank. In this 

case, the primary purpose of the QI’s 

relationship with its clients is to 

facilitate the exchange of property, not 

to place deposits at IDIs. Accordingly, 

under the final rule, QIs that place 

deposits into depository institutions to 

facilitate the exchange of two properties 

under section 1031 of the Internal 

Revenue Code are deemed to meet the 

primary purpose exception and qualify 

for a designated exception. This 

outcome is consistent with previous 

staff advisory opinions related to certain 

QIs.38

Deposits Related to Satisfaction of 

Certain Regulations 

Broker Dealer Funds in a Special 

Reserve Account for the Benefit of 

Customers. A broker dealer registered 

with the United States Securities and 

Exchange Commission (SEC) is required 

to establish an account at a bank titled 

‘‘Special Reserve Account for the 

Benefit of Customers’’ and to keep in the 

account cash or qualified securities 

(Special Reserve Account).39

The Special Reserve Account protects 

a broker dealer’s customers in the event 

the broker dealer is liquidated, in which 

case the funds and qualified securities 

in the Special Reserve Account, in 

addition to funds collected by the 

liquidating agent from customers of the 

firm that have debits, are used to satisfy 

customer claims on a pro rata basis 

before being available for the firm’s 

general creditors. While the broker 

dealer is operating as a going concern, 

it is prohibited from using the funds or 

qualified securities in the Special 

Reserve Account as security for a loan 

to the broker dealer by the bank.40

The primary purpose of the broker 

dealer’s business relationship with its 

customers is to facilitate the buying and 

selling of securities on behalf of 

customers. As part of that relationship 

a broker dealer is required to establish 

a Special Reserve Account is to provide 

customer protection in the event of a 

broker dealer liquidation. Thus, to the 

extent that the balance in a Special 

Reserve Account is owned by customers 

at the time funds are deposited into it, 

such arrangement meets the primary 

purpose exception and qualifies for a 

designated exception.41

Futures Commission Merchant’s 

Funds in a Segregated Customer 

Account. Regulations of the Commodity 

Futures Trading Commission (CFTC) 

provide protections for futures customer 

funds under a regulatory system similar 

to the SEC’s requirements related to the 

Special Reserve Account. Under the 

CFTC’s regulations, a futures 

commission merchant must maintain in 

a separate account at a bank or trust 

company money or permitted 

investments in an amount at least 

sufficient in the aggregate to cover its 

total obligations to all futures customers 

as computed under a formula 

established by the CFTC (Segregated 

Customer Account).42

The Segregated Customer Account 

protects a futures commission 

merchant’s customers in the event the 

futures commission merchant is 

liquidated, in which case the Account 

balance and permitted investments in 

the Segregated Customer Account, in 

addition to funds collected by the 

liquidating agent from customers of the 

firm that have debits, are used to satisfy 

customer claims on a pro rata basis 

before being available for the firm’s 

general creditors. 

The primary purpose of a futures 

commission merchant’s business 

relationship with its customers is to 

facilitate the buying and selling of 

futures and other investment products 

on behalf of customers. As part of that 

relationship, the futures commission 


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43See FDIC Staff Advisory Opinion 17–02 (June 

19, 2017). 44See FDIC Staff Advisory Opinion 94–13 (Mar. 

11, 1994). 45 26 U.S.C. 223. 46 26 U.S.C. 529. 

47 12 U.S.C. 1831f(g)(2)(D) and (E). Because the 

exceptions for trustees, plan administrators, and 

investment advisers for pension plans and other 

employee benefit plans are provided in separate 

statutory exception and are not related to the 

primary placement exception, no notice or 

application requirement would apply. 

48 12 U.S.C. 1831f(g)(2)(H). 

49This treatment for IRAs and other retirement 

plans that are not part of an employee benefit plan 

is consistent with how the FDIC viewed such 

accounts in a 1984 final rule, along with the Federal 

Home Loan Bank Board, when it adopted the 

definition of ‘‘deposit broker’’ upon which the 

current statutory definition is based. 

The insurance coverage currently available to 

deposits held in connection with pension funds and 

other employee benefit plans will not be affected by 

the rule unless such deposits are placed by or 

through a deposit broker. In addition, trustees and 

custodians of IRA and Keogh accounts will not be 

deemed to be deposit brokers. 49 FR 13003, 13009 

(Apr. 4, 1984). (emphasis added) 

merchant is required to establish a 

Segregated Customer Account to 

provide customer protection in the 

event of a futures commission 

merchant’s liquidation. Thus, to the 

extent that the balance of a Segregated 

Customer Account is owned by the 

firm’s customers at the time funds are 

deposited into it, such arrangement 

meets the primary purpose exception 

and qualify for a designated exception.43

The FDIC is aware of other deposit 

arrangements in which entities place 

deposits as required under federal or 

state law. While the FDIC does not have 

sufficient knowledge of such 

arrangements to grant designated 

exceptions for such arrangements in this 

final rule, the FDIC expects it would 

approve an application for a primary 

purpose exception under such 

circumstances when the primary 

purpose is not the placement of 

deposits. The FDIC will consider 

identifying specific such arrangements 

as designated exceptions in the future if 

warranted. 

Deposits Placed as Required Collateral 

for Credit-Card Loans 

Some deposits are placed at insured 

depository institutions by third parties 

that offer secured credit-card loans to 

their customers. The loans are secured 

by deposits belonging to the customers 

and held at insured depository 

institutions as required collateral that is 

typically capped to the amount of the 

credit line granted to the customer by 

the third party. Under this final rule, the 

primary purpose of the third party’s 

relationship with its customers is to 

provide consumers access to credit card 

loans and not to place deposits with 

IDIs. Accordingly, under this final rule, 

third parties that place customer funds 

into depository institutions as collateral 

for their customers to secure credit card 

loans will meet the primary purpose 

exception and qualify for a designated 

exception. This outcome is consistent 

with previous staff advisory opinions.44

Deposits Placed To Pay for or To 

Reimburse Qualified Medical Expenses 

Under Section 223 of the Internal 

Revenue Code 

Some deposits are placed with IDIs on 

behalf of customers participating in 

health savings accounts (HSAs). 

Individuals that participate in an HSA 

can use those funds to pay for or 

reimburse qualified medical expenses 

with certain tax benefits.45 Individuals 

may place funds directly with IDIs into 

HSAs, or, their funds may be placed 

into HSAs through employers that 

utilize third party administrators that 

manage HSA programs. As part of those 

management services, the third party 

administrator places, or facilitates the 

placement of, deposits at IDIs directly 

from employer payroll accounts. Funds 

in a designated HSA are intended to be 

used by the depositor for payment of 

qualified medical expenses. The 

primary purpose of the third party 

administrator’s relationship with its 

customers is to assist in placing 

customer funds into HSAs to facilitate 

the payment for or reimbursement of 

qualified medical expenses. 

Accordingly, under this final rule, 

entities that place, or facilitate the 

placement of, customer funds into HSAs 

pursuant to section 223 of the Internal 

Revenue code meet the primary purpose 

exception and qualify for a designated 

exception. 

The FDIC is aware that not all 

individuals with funds in an HSA use 

those funds only for qualified medical 

expenses. Nonetheless, the FDIC is 

persuaded that the primary purpose of 

HSA fund administrators is to enable 

the payment of qualified medical 

expenses. However, the FDIC will 

continue to monitor the evolution and 

use of HSA accounts over time. If at 

some point in the future, the primary 

purpose of HSA administrators has 

evolved to something other than 

enabling transactions related to 

qualified medical expenses, the FDIC 

may reevaluate whether this designated 

exception is still warranted. Any 

changes would be made through notice 

and comment rulemaking. 

Deposits Placed for Qualified Tuition 

Programs Under Section 529 of the 

Internal Revenue Code 

Some deposits are placed at IDIs by 

states, state agencies, or educational 

institutions as part of qualified tuition 

plans (or ‘‘529 plans’’). A 529 plan is a 

tax-advantaged savings plan designed to 

encourage saving for future education 

costs.46 The individual contributions for 

a 529 plan may be invested in a variety 

of financial products, including deposit 

products. The primary purpose of the 

state, state agency, or educational 

institution’s relationship with its 

investors is to provide a tax-advantaged 

savings plan designed to encourage 

saving for future education costs and 

not the placement of deposits. 

Accordingly, under this final rule, 

states, state agencies, or educational 

institutions that place investor funds 

into depository institutions pursuant to 

section 529 of the Internal Revenue 

Code will meet the primary purpose 

exception and qualify for a designated 

exception. 

Deposits Placed in a Retirement 

Account Not Part of an Employee 

Benefit Plan 

Section 29 contains an express 

exception from the deposit broker 

definition for trustees of a pension plan 

or other employee benefits plan and for 

plan administrators and investment 

advisors of such plans.47 Section 29 also 

provides an express exception for a 

trustee or custodian of a pension or 

profitsharing plan qualified under 

section 401(d) or 403(a) of the Internal 

Revenue Code.48 A commenter 

requested that the primary purpose 

exception apply with respect to 

individual retirement accounts. 

Congress has provided similar tax 

incentivized treatment for other 

retirement account arrangements that do 

not meet the definition of Employee 

Benefit Plan or the pension and 

profitsharing plans referenced in section 

29. Such arrangements include a 

traditional IRA, Simple IRA, and Roth 

IRAs. The primary purpose of an entity 

who places deposits in association with 

such plans is to enable participation in 

the retirement program and not place 

deposits at IDIs. Accordingly, the FDIC 

is establishing a designated exception 

for such plans.49

Deposits Placed by Agencies To 

Disburse Government Benefits 

Federal, state or local agencies 

(‘‘Agencies’’) sometimes use debit or 

prepaid cards to deliver funds to the 

beneficiaries of government programs. 

In some cases, such programs are 

structured so that each beneficiary will 

own a separate deposit account at 

particular insured depository 


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institutions (with the account being 

accessible by the beneficiary through 

the use of a debit card). Other programs 

may be structured so that multiple 

beneficiaries will own a commingled 

deposit account with ‘‘per beneficiary’’ 

or ‘‘pass-through’’ deposit insurance 

coverage. In these scenarios, the Agency 

is involved in choosing IDIs or opening 

deposit accounts to assist in the 

disbursement of funds to beneficiaries, 

as mandated by law. These accounts are 

also limited to the placement of funds 

for a designated government benefit 

program and may not be commingled 

with the beneficiary’s other funds 

outside of the government benefit 

program. The primary purpose of the 

Agency’s relationship with beneficiaries 

is to discharge its legal obligation by 

disbursing funds as part of a 

government program. Accordingly, 

under this final rule, Agencies that 

place funds for beneficiaries of 

government programs will meet the 

primary purpose exception and qualify 

for a designated exception. 

C. Other Business Relationships 

Under the final rule, agents or 

nominees that meet the ‘‘deposit 

broker’’ definition, but do not qualify for 

a designated exception, may submit an 

application to the FDIC. The FDIC will 

review whether the applicant 

sufficiently demonstrates that the 

primary purpose of the agent or 

nominee is something other than the 

placement, or facilitating the placement, 

of funds at insured depository 

institutions. As noted above, in 

conducting this review, the FDIC will 

specifically look at the primary purpose 

of the business relationship between the 

agent or nominee and its customers, 

with respect to a particular business 

line. For example, offering loans or a 

range of lending products, could be 

described in the application as the 

primary purpose of a business 

relationship, if lending is a more 

significant portion of a particular 

business line than placing, or 

facilitating the placement of, deposits is. 

As part of its review, the FDIC will, as 

proposed, consider the following 

factors: (1) The revenue structure for the 

agent or nominee; (2) whether the 

agent’s or nominee’s marketing 

activities to prospective depositors is 

aimed at opening a deposit account or 

to provide some other service, and if 

there is some other service, whether the 

opening of the deposit account is 

incidental to that other service; and (3) 

the fees, and type of fees, received by an 

agent or nominee for any deposit 

placement service it offers. A detailed 

discussion of the specific content 

requirements and timing for the 

application process is provided in 

section I(C)(3)(d) of this notice. 

The FDIC expects to make publicly 

available on the FDIC’s website (1) 

redacted summaries of certain approved 

applications, as soon as practicable, and 

(2) a list of additional designated 

exceptions, to the extent applicable, that 

will describe additional business 

arrangements not described in this 

rulemaking that the FDIC in the future 

determines meet the primary purpose 

exception without requiring an 

application. Redacted summaries 

available on the FDIC’s website will 

typically describe business relationships 

not discussed in this final rule that the 

FDIC has determined to meet the 

primary purpose exception and may be 

cited as support in applications for the 

primary purpose exception in certain 

circumstances. Designated exceptions 

identified following this rulemaking 

may be relied upon, without an 

application, by any agent or nominee 

that meets the published criteria. The 

FDIC would also note on the website 

whether a notice and/or any ongoing 

reporting will be required with respect 

to a new designated exception. 

The FDIC intends for the application 

process to promote transparency and 

consistency for entities seeking to use 

the primary purpose exception for 

business relationships that do not 

qualify for a designated exception. In 

addition to transparency and 

consistency for the public, the 

application process is intended to 

enhance FDIC’s ability to protect the 

DIF and promote safety and soundness, 

particularly with respect to new or 

novel business arrangements. 

D. Business Relationships Ineligible for 

the Primary Purpose Exception 

1. Deposit Placements of Brokered CDs 

In the Brokered Deposits NPR, the 

FDIC stated that it would continue to 

consider a person’s placement of 

brokered CDs (as described in the third 

prong to the deposit broker definition 

and as discussed above) as deposit 

brokering. Under the proposal, for 

purposes of establishing the person’s 

primary purpose, the person’s 

placement of brokered CDs would be 

considered a discrete and independent 

business line from other deposit 

placement businesses. Thus, the 

primary purpose for that particular 

business line would always be the 

placement of deposits at depository 

institutions, even if the person may not 

be considered a deposit broker for other 

deposits that it places (or for which it 

facilitates the placement), which would 

be evaluated as a separate business line. 

The FDIC is finalizing this aspect of 

the proposed rule as proposed. 

Accordingly, consistent with the intent 

of Section 29 (and part 337 of the FDIC’s 

regulations), brokered CDs, as has been 

the case since 1989, will be considered 

brokered. Deposits related to brokered 

CDs will not be included for purposes 

of determining whether a person’s other 

business lines meet the primary purpose 

exception. 

2. Deposit Placements for Purposes of 

Encouraging Savings 

In the Brokered Deposits NPR, the 

FDIC proposed that the FDIC would not 

grant a primary purpose exception if the 

third party’s primary purpose for its 

business relationship with its customers 

is to place (or assist in the placement of) 

funds into deposit accounts to 

‘‘encourage savings,’’ ‘‘maximize yield,’’ 

‘‘provide deposit insurance,’’ or any 

similar purpose. The FDIC expressed 

concern that these types of services 

could evade the purposes of section 29. 

The FDIC is finalizing this aspect of 

the proposed rule as proposed. It is the 

FDIC’s view that there is no meaningful 

distinction between a primary purpose 

of ‘‘encouraging savings,’’ ‘‘maximizing 

yield,’’ ‘‘providing deposit insurance,’’ 

or any similar purpose and a primary 

purpose of placing funds into a deposit 

account. Furthermore, granting a 

primary purpose exception based on 

such rationales could result in all 

deposit arrangements satisfying the 

primary purpose exception, which 

would not be consistent with section 29. 

As such, third parties that either place 

or assist in the placement of deposits to 

provide these core deposit-placement 

services for its customers will not 

qualify for the primary purpose 

exception. 

The FDIC notes that one of the 

designated exceptions is for 529 plans 

in which the primary purpose is to 

encourage savings for future education 

costs as part of a tax-advantaged savings 

plan. While a primary purpose of 

encouraging or enabling savings does 

not generally qualify for the primary 

purpose exception for the reasons 

described above, encouraging savings as 

part of a specific tax-incentivized 

government program, similar to 529 

plans, may qualify. 

E. Evaluation of Business Lines 

As noted in the Brokered Deposits 

NPR, the analysis and assessment of 

discrete business lines is an important 

aspect of whether certain agents or 

nominees meet the primary purpose 

exception. In evaluating whether an 


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50Entities that qualify for other designated 

exceptions detailed above are not subject to a 

notice, application, or reporting process. The 

applicable specific contents for the two types of 

notice submissions are provided in section 

I(C)(3)(b). 

applicant meets the requirements of the 

primary purpose exception, the FDIC 

would analyze specific business lines in 

which the applicant has a specific type 

of relationship with its customers. This 

was intended to prevent an agent or 

nominee engaged in the brokering of 

deposits from evading the statutory 

restrictions by adding or combining its 

brokering business with another 

business such that the deposit broker 

business is no longer its primary 

purpose. Under the proposed rule, the 

term business line would refer to the 

business relationships an agent or 

nominee has with a group of customers 

for whom the business places, or 

facilitates the placement of, deposits. 

Commenters who addressed the 

proposed definition of ‘‘business line’’ 

raised concerns that the proposed 

definition does not reflect how 

businesses view their business lines. 

Specifically, commenters suggested that 

the FDIC permit the third party to 

identify one or more business lines for 

purposes of the application process, so 

that the business line would reflect risk 

management and reporting policies and 

procedures utilized by the third party. 

These commenters expressed the view 

that the third party, rather than the 

FDIC, should have discretion to 

determine specific business lines, as 

business lines will vary significantly 

across different entities. One commenter 

noted that business line information is 

generally proprietary and confidential 

and thus third parties may not be 

willing to provide such information. 

The FDIC expects that entities that 

submit a notice or application for the 

primary purpose exception should, in 

good faith, determine their appropriate, 

specific business lines. The FDIC, in 

reviewing a particular business 

arrangement for the primary purpose 

exception, will generally defer to the 

descriptions of business lines provided 

by the applicant or notice-filer. 

Nonetheless, the determination of what 

constitutes a business line will depend 

on the facts and circumstances of a 

particular deposit placement 

arrangement, and the FDIC ultimately 

retains discretion to determine the 

appropriate business line to which the 

primary purpose exception would 

apply. The FDIC is more likely to 

scrutinize the identification of a 

business line if the business 

relationships to which it refers are 

materially broader than the business 

relationships with the specific group of 

customers for whom the business 

places, or facilitates the placement of, 

deposits. 

The FDIC expects that in many cases, 

particularly in the case of agents or 

nominees who are nonfinancial 

companies, the identification of a 

business line will be simple and 

straightforward, and in some cases may 

encompass an entire business. 

F. Involvement of Other Third Party 

Intermediaries 

If an agent or nominee qualifies for a 

statutory exception from the deposit 

broker definition, it is possible that one 

or more additional third parties that are 

engaged in the business of placing, or 

facilitating the placement of, customer 

deposits may qualify as a deposit 

broker. The FDIC understands that, in 

certain deposit placement arrangements, 

agents or nominees may use third party 

intermediaries (and in some cases a 

number of them) to provide 

administrative functions. To the extent 

that these third party intermediaries do 

not meet the deposit broker definition, 

then deposits placed at IDIs via an agent 

or nominee that meet an exception to 

the definition of deposit broker (for 

example, the primary purpose 

exception), will be nonbrokered. If, 

however, the third party intermediary 

is, for example, providing matchmaking 

functions for the agent or nominee and 

insured depository institutions, as 

defined in this final rule, then it would 

meet the ‘‘facilitation’’ part of the 

deposit broker definition, and the 

deposits placed by or through the 

intermediary would be brokered 

deposits, regardless of the status of the 

agent or nominee. 

In the case of the primary purpose 

exception, IDIs that receive deposits 

from agents or nominees that meet the 

primary purpose exception should be 

aware of any other third parties 

involved in the placement of deposits 

and whether those other third parties 

meet the deposit broker definition in 

order to properly complete their 

Consolidated Reports of Condition and 

Income (‘‘Call Reports’’), which require 

reporting of brokered deposits held by 

IDIs. If such other third parties meet the 

definition of deposit broker, deposits 

placed by or through that third party are 

considered brokered. 

See section I(C)(3)(h) for further 

discussion of this topic in the context of 

designated exceptions subject to the 

notice requirement and the application 

process. 

3. Notice and Application Process for 

the Primary Purpose Exception 

Under the proposal, entities that place 

deposits at insured depository 

institutions under the business 

relationships that were deemed to meet 

the primary purpose exception would 

have been subject to expedited 

processing under the application 

process. The FDIC is revising this part 

of the proposed application process and, 

under the final rule, will no longer 

require applications for those two 

business relationships or for the 

additional designated business 

relationships described in this final 

rule. The purpose of this change from 

the proposal is to streamline the process 

for entities (or business arrangements) 

that meet a bright-line primary purpose 

exception. In other words, the FDIC has 

already evaluated these business 

relationships as part of this rulemaking 

process and has determined that they 

meet the primary purpose exception. As 

such, entities will not need to go 

through an application process if they 

are placing, or facilitating the placement 

of, deposits as part of a business 

relationship that is a designated 

exception under this final rule. 

a. Notice Requirement 

For two of the designated 

exceptions—the ‘‘25 percent’’ and the 

‘‘enabling transactions’’ business 

relationships—the FDIC is requiring that 

third parties submit a written notice to 

the FDIC indicating that the third party 

will rely upon the applicable designated 

exception.50 The notice may also be 

submitted by an insured depository 

institution that is receiving deposits 

from the third party. 

Upon the FDIC’s receipt of the notice, 

the third party that is the subject of the 

notice may rely upon the applicable 

designated exception for a particular 

business line. The FDIC will establish 

an electronic process for the receipt of 

notices. This process will include 

providing the notice filer with an 

immediate acknowledgement of receipt. 

The FDIC may, however, at its 

discretion, and at any time, including 

during the supervision and examination 

of an insured depository institution, 

require the notice filer to provide 

additional information. Such requests 

generally will be limited to verifying 

that the third party meets the criteria for 

the applicable designated exception, 

and the FDIC generally expects to only 

make such requests if there is reason to 

believe that the third party does not 

meet, or no longer meets, the criteria for 

the applicable designated exception. 

The FDIC also may occasionally request 

other information, such as descriptions 

of the services provided by any 

additional third parties involved in the 


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51See section I(C)(3)(h) for further discussion on 

requests for additional information related to 

additional third parties. 

52 If a primary purpose exception is revoked due 

to an inaccurate notice or report, or due to a failure 

to submit a required report, but the entity continues 

to satisfy the criteria of the designated exception, 

the entity may refile a notice with accurate 

information. 

53The total amount of deposits placed by the 

third party should be exclusive of the amount of 

brokered CDs being placed by the third party, 

which is treated as a separate business line. 

54The FDIC will look to each separately 

incorporated legal entity as its own ‘‘third party’’ 

for purposes of this application process. IDIs may 

submit an application on behalf of a third party that 

is placing deposits with the IDI. 

55A description of the application contents for 

agents or nominees seeking the primary purpose 

Continued 

deposit placement arrangement that 

may meet the deposit broker 

definition.51 The FDIC will only request 

information specifically relevant to 

whether or not the deposits being 

placed are brokered. If the FDIC learns 

that the entity no longer meets the 

criteria of the designated exception or 

that information provided in a notice or 

subsequent reporting was inaccurate, or 

the entity fails to submit required 

reports, the FDIC may, with notice, 

revoke the entity’s primary purpose 

exception.52

The FDIC is requiring a notice for the 

‘‘25 percent’’ and ‘‘enabling 

transactions’’ designated exceptions, 

and not for the other designated 

exceptions identified in this final rule, 

because eligibility for those two 

designated exceptions would be 

difficult for the FDIC or an IDI to verify 

or monitor without access to the 

contents of the notice (which are 

described below). The other designated 

exceptions generally relate to more 

specific deposit placement 

arrangements and describe criteria that 

are less difficult to verify or monitor. 

The FDIC may, or may not, also decide 

to require a notice for any additional 

designated exceptions that are identified 

after the issuance of this final rule, and 

the FDIC expects such decisions to be 

based on similar analysis to that 

described in this paragraph. 

The final rule also requires that third 

parties that notified the FDIC of reliance 

on a designated exception submit a 

subsequent notice to the FDIC if the 

third party no longer meets the primary 

purpose exception. 

b. Notice Contents and Reporting 

Requirement 

The written notice that an entity 

submits will need to include (1) the 

designated exception upon which the 

entity is relying; (2) a brief description 

of the business line; (3) the applicable 

specific contents for the designated 

exception; (4) a statement that there is 

no involvement of any additional third 

party who qualifies as a deposit broker, 

or a brief description of any additional 

third party that may qualify as a deposit 

broker; and (5) if the notice is provided 

by a nonbank entity, a list of the IDIs 

that are receiving deposits by or through 

the particular business line at the time 

that the notice is filed. For third parties 

that meet the primary purpose 

exception based on the ‘‘25 percent’’ 

designated exception the applicable 

specific contents are: 

Æ The total amount of customer assets 

under administration by the third party 

for that particular business line; and 

Æ the total amount of deposits placed 

by the third party on behalf of its 

customers, for that particular business 

line, at all depository institutions.53

For third parties that meet the 

primary purpose exception based on the 

‘‘enabling transactions’’ designated 

exception the applicable specific 

contents are: 

Æ Contractual evidence that there is 

no interest, fees, or other remuneration 

being paid to any customer accounts, 

and 

Æ a certification that all customer 

deposits are in transaction accounts. 

Third parties, or insured depository 

institutions, that submit a notice under 

the ‘‘25 percent’’ test will be required to 

provide reporting on a quarterly basis to 

the FDIC. The report will need to 

include updates to the figures that were 

provided as part of the original notice 

submission. 

For those that submit a notice under 

the ‘‘enabling transactions’’ test, the 

filing entity will need to provide an 

annual certification that the third party 

continues to place all customer funds at 

depository institutions into transaction 

accounts and that customers do not 

receive or accrue any interest, fees, or 

other remuneration. 

c. Overview of the Application Process 

The FDIC is finalizing the proposed 

application process for entities that seek 

to qualify for the primary purpose 

exception but that do not meet a 

designated exception. As part of this 

process, an entity can submit an 

application to the FDIC. For purposes of 

the application process, the term 

‘‘applicant’’ includes an insured 

depository institution or a nonbank 

third party 54 that meets the ‘‘deposit 

broker’’ definition by either placing (or 

facilitating the placement of) customer 

deposits at insured depository 

institutions and that seeks to be 

excluded from that definition through 

the primary purpose exception. If an 

application is approved, the agent or 

nominee will be considered to meet the 

primary purpose exception for a 

particular business line. 

As mentioned, an applicant may be an 

insured depository institution that 

applies to the FDIC on behalf of a third 

party seeking a determination that the 

third party meets the primary purpose 

exception. In this case, if appropriate, 

the FDIC will evaluate the third party’s 

relationships with all IDIs in which the 

third party places, or facilitates the 

placement of, deposits. An approval that 

a third party meets the primary purpose 

exception based on an application by an 

IDI on behalf of the third party might be 

applicable to all deposit placements by 

that third party at any other IDI(s) to the 

extent that the deposit placement 

arrangements with the other IDI(s) are 

the same as the arrangement between 

the applicant and the third party. The 

FDIC is of the view that that an agent 

or nominee who seeks a primary 

purpose exception is likely to apply on 

its own behalf, given that the 

information required to complete an 

application will be in possession of the 

agent or nominee. 

Under the proposal, applicants would 

have received a written determination 

from the FDIC within 120 days of a 

complete application, unless extended 

by the FDIC with notice if necessary. A 

commenter requested more clarity 

around the proposed timeline, and 

suggested additional timelines for 

certain steps in the process. The FDIC 

is providing additional clarity, 

consistent with the intent of the 

proposal, that the FDIC will notify an 

applicant within 45 days of submission 

if an application is not complete, and 

that an extension, if necessary, beyond 

the initial 120 days may last for a 

maximum of 120 additional days. 

The FDIC will approve applications 

submitted under this process if the 

application demonstrates to the FDIC’s 

satisfaction, with respect to the 

particular business line under which the 

third party places or facilitates the 

placement of deposits, that the primary 

purpose of the third party, for that 

business line, is a purpose other than 

the placement or facilitation of 

placement of deposits. Approved 

applicants may be subject to periodic 

reporting requirements to enable the 

FDIC to ensure that the applicant 

continues to meet the exception. 

d. Application Contents 

An application must include, to the 

extent applicable, at a minimum: 55


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exception under the ‘‘enabling transactions’’ 

business relationship because they place all 

customer deposits at depository institutions into 

transactional accounts but the customer earns some 

amount of interest, fees or other remuneration are 

provided in section I(C)(2)(b)(ii)(A)(2). 

(1) A description of the deposit 

placement arrangements between the 

third party and insured depository 

institutions for the particular business 

line, including the services provided by 

any relevant third parties; 

(2) A description of the business line 

for which the applicant is filing an 

application; 

(3) A description of the primary 

purpose of the particular business line; 

(4) The total amount of assets under 

administration by the third party; 

(5) The total amount of deposits 

placed by the third party at all insured 

depository institutions, including the 

amounts placed with the applicant, if 

the applicant is an insured depository 

institution. This includes the total 

amount of term deposits and 

transactional deposits placed by the 

third party, but should be exclusive of 

the amount of brokered CDs being 

placed by that third party; 

(6) Revenue generated from the third 

party’s activities related to the 

placement, or the facilitating of the 

placement, of deposits; 

(7) Revenue generated from the third 

party’s activities not related to the 

placement, or the facilitating of the 

placement, of deposits; 

(8) A description of the marketing 

activities provided by the third party to 

prospective depositors; 

(9) The reasons the third party meets 

the primary purpose exception; 

(10) Any other information the 

applicant deems relevant; and 

(11) Any other information that the 

FDIC determines is necessary to 

complete its review. 

The application also should include 

supporting documentation and relevant 

contracts related to the items above. The 

FDIC retains authority to request 

additional information at any time 

during its review. The FDIC’s review of 

whether a third party meets the primary 

purpose exception will be based on the 

application and all supporting 

information provided. 

e. Reporting for Approved Applicants 

Approved applicants may be subject 

to periodic reporting requirements. 

These reporting requirements will allow 

the FDIC to monitor the applicability of 

the primary purpose exception and 

ensure that the FDIC is aware of any 

material changes to the criteria under 

which the FDIC approved the 

application. The FDIC will describe 

specific reporting requirements, 

including the frequency and any 

calculation methodology, as part of its 

written approval for a primary purpose 

exception. The FDIC does not expect to 

require ongoing reporting in all cases. 

The FDIC will decide whether to require 

reporting, and tailor such reporting if 

appropriate, on a case-by-case basis, 

depending on the type of information 

that the FDIC relies upon to determine 

that a particular agent or nominee meets 

the primary purpose exception. 

Reporting will not be required more 

frequently than quarterly. 

f. Monitoring for IDIs 

Under the proposed rule, an IDI that 

accepted deposits from a third party that 

relies upon the primary purpose 

exception would have been responsible 

for monitoring the nonbank third party’s 

eligibility for the primary purpose 

exception. The proposal further noted 

that when establishing a contractual 

relationship with a nonbank third party 

for the placement of deposits that may 

be classified as nonbrokered due to the 

primary purpose exception, the IDI may 

wish to consider the reporting and 

monitoring requirements described 

here. The FDIC received a number of 

comments that these expectations 

would be difficult to manage or 

unworkable. Given the potential volume 

of third parties that could qualify for the 

primary purpose exception, and the 

idiosyncratic business models that such 

third parties may have, the FDIC agrees 

that this expectation is not appropriate. 

Instead, under the final rule, an IDI that 

accepts deposits from a third party that 

relies on the primary purpose exception 

would be expected to be able to access 

records of the nonbank third party’s 

eligibility for the primary purpose 

exception, including copies of the 

notices delivered to the FDIC and any 

accepted applications. The FDIC also 

expects that if an IDI has reason to 

believe that a third party that qualified 

for a primary purpose exception no 

longer qualifies for the primary purpose 

exception, for example due to a change 

in business model, the IDI would notify 

the FDIC and its primary financial 

regulator and report the deposits as 

brokered. 

g. Requesting Additional Information, 

Requiring Re-Application, Imposing 

Additional Conditions, and 

Withdrawing Approvals 

At any time after approval of an 

application, the FDIC may, at its 

discretion, and at any time, including 

during the supervision and examination 

of an insured depository institution, 

require an entity whose application has 

been approved to provide additional 

information. Such requests generally 

will be limited to verifying that the 

entity continues to satisfy the terms of 

the approved application, and the FDIC 

generally expects to only make such 

requests if there is reason to believe that 

the entity does not meet, or no longer 

meets, the terms of the approved 

application. The FDIC also may 

occasionally request other information, 

such as the services provided as part of 

the deposit placement arrangement by 

any additional third parties that may 

meet the deposit broker definition. The 

FDIC will only request information 

specifically relevant to whether or not 

the deposits being placed are brokered. 

If the FDIC learns that the entity no 

longer meets the terms of the approved 

application, for example because the 

entity has undergone material changes 

to its business that renders the business 

no longer eligible for the primary 

purpose exception, or that information 

provided in an application or 

subsequent reporting was inaccurate, 

the FDIC may, with written notice and 

adequate justification, require the entity 

to submit a new application for 

approval, impose additional conditions 

on the previously granted approval, or 

withdraw a previously granted 

approval. 

A commenter requested that the FDIC 

clarify that the FDIC would only modify 

or withdraw an approval if there is a 

material change in the facts or 

circumstances relied on by the FDIC in 

granting its initial approval. As noted 

above, the FDIC would modify or 

withdraw an application if the FDIC 

learns that the entity no longer meets 

the terms of the approved application or 

if information provided in an 

application or subsequent reporting was 

inaccurate. Additionally, the FDIC 

generally expects to give an entity with 

an approved application an opportunity 

to reapply or adjust its business 

relationships prior to withdrawing, or 

imposing additional conditions, on a 

previously granted approval. 

h. Additional Third Parties 

As noted above, the FDIC may request 

additional information following the 

filing of a notice or application about 

additional third parties involved in the 

arrangement. If the FDIC finds that a 

third party applicant or notice filer (or 

a third party on whose behalf an IDI has 

submitted a notice or application) meets 

the primary purpose exception, but 

another third party involved in the 

arrangement meets the deposit broker 

definition, the FDIC would notify the 

applicant and the other third party of 

this finding. The absence of such a 


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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 6759 

56A discussion of the primary purpose exception 

and the advisory opinions provided in section 

I(C)(2)(b)(ii)(B). 

57See discussion on ‘‘designated exceptions’’ in 

section I(C)(2)(b)(ii)(A)–(B). 58See list of publicly available FDIC staff 

advisory opinions and FILs related to section 29 in 

Appendix 1. 

finding does not mean that no 

additional third party meets the deposit 

broker definition. The FDIC expects to 

request such additional information and 

make such findings only in certain 

circumstances, and not on a regular or 

frequent basis, and entities should not 

rely on the FDIC to decide whether 

additional third parties are deposit 

brokers. 

4. Effective Date and Extended 

Compliance 

Except as specifically provided here, 

the final rule will take effect on April 1, 

2021, and will be reflected in Call 

Report Data due June 30, 2021. Full 

compliance with the regulation is 

extended to January 1, 2022. The 

extended compliance date is intended to 

provide sufficient time for financial 

institutions to put in place systems to 

implement the new regulatory regime 

and to allow the FDIC to develop 

internal processes and systems to ensure 

a consistent and robust review process. 

Notices. Starting April 1, 2021, an 

entity that wishes to rely upon a 

designated exception for the primary 

purpose exception described in this 

final rule that requires a notice 

submission must file a notice, and 

comply with any applicable reporting 

requirements. However, the full 

compliance date of January 1, 2022, will 

allow entities to continue to rely upon 

existing staff advisory opinions or other 

interpretations that predated this final 

rule in determining whether deposits 

placed by or through an agent or 

nominee are brokered deposits. After 

January 1, 2022, entities may no longer 

rely on upon staff advisory opinions or 

other interpretations that predated this 

final rule, and to the extent that such 

entities instead opt to rely on a 

designated exception for which a notice 

is required, a notice must be filed. After 

January 1, 2022, the advisory opinions 

and other publicly available 

interpretations set forth in Appendix 1 

to this notice will be moved to inactive 

status. 

Applications. Similarly, starting April 

1, 2021, entities that wish to apply for 

a primary purpose exception, as 

described in section I(C)(3)(c–g), may 

submit an application starting on that 

date. The FDIC will begin its application 

review as soon as possible, but no later 

than September 3, 2021. Written 

determinations for applications 

submitted on or before September 3, 

2021, will be provided by January 1, 

2022 (consistent with the 120-day 

review period), unless extended, with 

notice, if necessary. As stated above, 

however, the full compliance date 

provision will allow entities who rely 

on the primary purpose exception the 

option to continue to rely on existing 

staff advisory opinions or other 

interpretations that predated this final 

rule until January 1, 2022. After that 

date, such entities will no longer be 

permitted to rely on existing staff 

advisory opinions or other 

interpretations that predated this final 

rule and must have an application, if 

appropriate. 

5. Prior FDIC Staff Advisory Opinions 

In the Brokered Deposits NPR, the 

FDIC indicated that it would review 

existing advisory opinions to determine 

those that should be codified in the final 

rule and those that are outdated and 

should be rescinded. This section 

reviews and discusses the comments 

relating to prior FDIC staff advisory 

opinions. The FDIC notes, however, that 

this final rule will allow certain entities 

that have relied upon previous staff 

opinions regarding the primary purpose 

exception to continue to rely upon the 

primary purpose exception under 

designated exemptions described.56

Moreover, and as provided above in 

section I(C)(4), the FDIC will allow 

entities to continue to rely upon all 

previous staff advisory opinions related 

to brokered deposits until January 1, 

2022. 

a. Comments on Prior FDIC Staff 

Advisory Opinions 

A significant number of commenters 

addressed this aspect of the Brokered 

Deposits NPR. Of those who 

commented, the majority urged the 

FDIC to grandfather all existing advisory 

opinions, particularly those opinions 

where the staff had previously 

interpreted the primary purpose 

exception as applying. A few 

commenters identified specific advisory 

opinions that they believed should be 

retained or codified, but the general 

view was that all advisory opinions 

should continue to be available and 

active. 

One banker recommended that the 

FDIC retain existing advisory opinions 

that conclude that specific company 

activities do not make the company a 

deposit broker, while several other 

bankers urged the FDIC to grandfather 

all relationships based on current 

advisory opinions and suggested that 

such relationships be exempt from the 

definition of deposit broker. One banker 

stated that firmly-established business 

relationships should be protected by 

maintaining all existing FDIC advisory 

opinions, while a second banker stated 

that the FDIC should maintain all 

advisory opinions to avoid dismantling 

established partnerships with industry 

participants who rely on current 

advisory opinions to provide their 

services to banks. Still another banker 

suggested that the FDIC codify certain 

long-standing, frequently relied-upon 

advisory opinions and repeal or update 

outdated advisory opinions. 

A few commenters also addressed the 

process of reviewing and rescinding, or 

codifying, any advisory opinions. A 

state bankers’ association called on the 

FDIC to publicly indicate which 

advisory opinions would remain and 

allow a three-year transition to conform 

to the new rule. A national trade group 

representing the banking industry 

suggested that the FDIC implement a 

formal notice and comment process for 

rescission of advisory opinions, and 

stated that any exemptions from 

previously granted advisory opinions 

should remain in effect. The commenter 

further stated that any exemptions that 

are revoked should have a 3-year 

transition period. A second bank trade 

association wrote that the FDIC should 

only rescind the advisory opinions after 

a notice and comment period. 

b. Final Rule Discussion of Prior Staff 

Advisory Opinions 

As part of this rulemaking process, 

the FDIC evaluated all previous FDIC 

staff advisory opinions related to 

brokered deposits to identify those that 

are no longer relevant or applicable 

based upon the revisions made as part 

of this final rule. The FDIC also, as part 

of its review, evaluated whether 

previous FDIC staff advisory opinions 

may continue to be relied upon and may 

be applicable under the new framework 

of this final rule. 

As a result of this review, the content 

of some of the opinions have been 

included in this final rule.57 However, 

upon the full compliance date of the 

final rule (January 1, 2022), previous 

staff advisory opinions will be moved to 

inactive status on the FDIC’s website.58

The FDIC recognizes that given the 

significant changes in the regulation, it 

is likely that in most, if not all, cases, 

the analysis contained in the various 

advisory opinions will no longer 

accurately reflect the regulation, even 

though in many cases the result will be 

the same. Codifying all previous staff 

opinions would thus result in the 

existence of two parallel regulatory 


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6760 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 

59See 12 U.S.C. 1831f(g)(2). 

regimes for brokered deposits that 

would make it difficult for entities and 

banks to understand the interpretations 

that apply for their particular deposit 

placement arrangement. Instead, the 

FDIC has (1) provided additional clarity 

on the ‘‘facilitation’’ part of the deposit 

broker definition and (2) included in its 

list of designated exceptions a number 

of the business arrangements that have 

previously been viewed by staff at the 

FDIC to meet the primary purpose 

exception. In addition, and as noted 

earlier, the FDIC has established an 

extended compliance period for the 

final rule to ensure that entities who are 

impacted have ample time to adjust 

previous arrangements, if necessary. 

Those entities such as listing services, 

marketing firms, or certain companies 

that design their own deposit products 

with special features, which have relied 

upon previous staff advisory opinions 

outside of the primary purpose 

exception context to develop their 

business in a way to avoid meeting the 

‘‘deposit broker’’ definition, will need to 

review the new criteria developed under 

this final rule to determine whether 

their current arrangements meet the 

deposit broker definition. Below is a 

discussion of these entities and how 

they fit within this final rule. 

Listing services. A ‘‘listing service’’ is 

a company that compiles information 

about the interest rates offered by banks 

on deposit products. Through the years, 

staff at the FDIC have developed criteria 

to help determine whether a ‘‘listing 

service’’ meets the ‘‘deposit broker’’ 

definition. Under this final rule, the 

FDIC anticipates that whether a listing 

service, or a similar service that posts 

information about bank rates, is a 

deposit broker will likely depend on 

whether the service meets the new 

criteria under the ‘‘facilitation’’ part of 

the deposit broker definition. Based 

upon the new ‘‘facilitation’’ definition, 

a listing service that is passively posting 

rate information and sending trade 

confirmations between the depositor 

and the bank is unlikely to be a deposit 

broker. However, if a listing service 

provides services that meet one of the 

three prongs of the ‘‘facilitation’’ 

definition, then it would be considered 

a deposit broker. 

Entities that Provide Marketing 

Services. Some insured depository 

institutions attempt to attract new 

depositors through advertising or 

referrals by third parties in exchange for 

fees based upon the volume of deposits 

placed. In these cases, and under the 

assumption that the deposits are being 

placed directly by the depositors, the 

third parties generally would not meet 

the ‘‘deposit broker’’ definition, unless 

they took actions that meet one of the 

three prongs of the ‘‘facilitation’’ 

definition. Under the definition of 

facilitation, it is unlikely that a third 

party that is, for example, providing 

general marketing or advertising 

services on behalf of a bank (e.g., 

providing a link on its website) in 

exchange for a volume-based fee, will 

meet the deposit broker definition. 

Entities that Design Deposit Products. 

Some third parties design deposit 

products with special features, such as 

deposit accounts that produce interest 

or rewards based on account activity. If 

a company merely designs deposit 

products or deposit accounts for banks, 

and markets the banks that offer the 

deposit products, it would not likely 

meet the deposit broker definition 

unless it places deposits at more than 

one IDI or meets one of the three prongs 

of the ‘‘facilitation’’ definition. 

D. Discussion of Certain Other Deposit 

Placement Arrangements Raised by 

Commenters 

In response to the NPR, some 

commenters asked how deposits placed 

through certain third parties would be 

treated under the primary purpose 

exception. These arrangements are not 

being designated as meeting the primary 

purpose exception, however, the FDIC 

acknowledges that under certain 

circumstances, an agent or nominee 

acting under one of these business 

relationships could meet one of the 

designated exceptions. 

Trust Companies. Trust companies 

that administer trusts sometimes place 

funds at IDIs while acting in a fiduciary 

capacity for a number of clients and 

accounts. The FDIC understands that 

these trust companies invest their 

customer assets under administration in 

a variety of different investment 

products, which may include deposit 

accounts. As such, the FDIC believes 

that some trust companies will be 

eligible to meet the primary purpose 

exception under the ‘‘25 percent test’’ 

because they place less than 25 percent 

of customer assets under administration 

at IDIs. Additionally, a trust company 

that places customer deposits, as 

described above, at only one IDI would 

not qualify as a deposit broker. 

Moreover, section 29 provides 

targeted statutory exceptions to the 

‘‘deposit broker’’ definition for specific 

trust activities and one for trust 

departments of IDIs.59 Trust companies 

that place customer deposits with IDIs 

that do not qualify for any of the 

exceptions listed above will also be able 

to avail themselves of the primary 

purpose exception through the 

application process provided in this 

final rule, and the application would be 

approved if the trust company 

demonstrated that providing traditional 

trust services, rather than placing 

deposits, was the trust company’s 

primary purpose. 

Companies that Provide Certain 

Software Services. Some companies 

provide accounting, cash management, 

and other administrative support via 

software services to clients. These 

companies, on behalf of its clients, place 

deposits at either one or a group of 

preferred or partner banks that are 

sometimes integrated with its software 

services. Because these companies place 

deposits at IDIs, they meet the definition 

of ‘‘deposit broker.’’ Commenters, in 

response to the NPR, argued that such 

software companies (e.g., bankruptcy 

management software companies) 

should meet the primary purpose 

exception because their primary 

relationship with its customers is to 

provide accounting services and not the 

placement of deposits. The FDIC notes 

that software providers may place 

customer deposits into transactional 

accounts that pay no (or nominal 

amounts of) interest, fees, or other 

remuneration to the customer. As such, 

these software providers may be eligible 

to meet the enabling transactions test for 

the primary purpose exception. 

Additionally, a software provider that 

places customer deposits, as described 

above, at only one IDI would not qualify 

as a deposit broker. If such a software 

provider does not meet the enabling 

transactions test and applies for a 

primary purpose exception, the FDIC 

would approve the application if the 

software provider demonstrates that 

providing software services, rather than 

placing deposits, is the primary purpose 

of the business relationship. 

E. Other Supervisory Matters Related to 

Brokered Deposits 

1. Brokered Deposits and Assessments 

In the proposed rule, the FDIC noted 

that it planned to consider 

modifications to its deposit insurance 

assessment regulations in light of the 

changes made to the brokered deposits 

regulation. This was one of several 

changes the FDIC was considering to 

make its large bank pricing model more 

risk-sensitive. Given the economic 

uncertainty surrounding the COVID–19 

pandemic, the FDIC decided to 

postpone consideration of such changes 

to its deposit insurance assessment 

pricing. As noted below, institutions 

will be required to report to the FDIC or 

on the Call Report certain types of 


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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 6761 

60Examiners will not, however, require that an 

IDI treat a third party as a deposit broker if the third 

party has qualified for the primary purpose 

exception through a designated exception or an 

approved application. 

61Call Report data, June 30, 2020. 

62A number of the ‘‘designated exceptions’’ 

identified as meeting the primary purpose 

exception are based upon business relationships 

that staff at the FDIC previously viewed as meeting 

the primary purpose exception. 

deposits that will not be considered 

brokered deposits under the final rule. 

The FDIC plans to monitor the data 

resulting from such reporting and will 

consider in the future whether 

modifications to deposit insurance 

assessment pricing related to certain 

types of funding concentrations are 

warranted, consistent with the statutory 

requirement that the assessments be 

risk-based. 

2. Reporting of Certain Deposits on Call 

Reports 

The proposed rule indicated that the 

FDIC will consider requiring reporting 

of deposits that are excluded from being 

reported as brokered deposits because of 

the application of the primary purpose 

exception. As part of the final rule 

implementing a stable funding 

requirement for certain large banking 

organizations (also known as the net 

stable funding ratio or ‘‘NSFR’’) the 

FDIC, along with the Board of Governors 

of the Federal Reserve System and the 

Office of the Comptroller of the 

Currency, stated their intent to revise 

the Call Reports to obtain data that may 

help evaluate funding stability of sweep 

deposits over time to determine their 

appropriate treatment under the 

liquidity regulations. The FDIC further 

intends to monitor this information to 

assess the risk factors associated with 

sweep deposits and determine 

assessment implications, if any. Any 

changes to reporting requirements 

applicable to the Call Reports, and their 

instructions, would be effectuated in 

coordination with the Federal Financial 

Institutions Examination Council in a 

separate Paperwork Reduction Act 

notice. 

3. Additional Supervisory Matters 

The FDIC recognizes that, under the 

final rule, categories of deposits that are 

currently considered brokered will 

instead be nonbrokered. The FDIC will 

continue to take such supervisory efforts 

as may be necessary to ensure that 

banks are operating in a safe and sound 

manner. Nothing in the final rule is 

intended to limit the FDIC’s ability to 

review or take supervisory action with 

respect to funding-related matters, 

including funding concentrations, that 

may affect the safety and soundness of 

individual banks or the industry 

generally. FDIC examiners will continue 

to review funding as part of safety and 

soundness examinations, regardless of 

whether or not the deposits used by the 

IDI are brokered. Among other things, 

examiners will review whether banks 

are reporting their deposits 

appropriately on Call Reports.60 The 

FDIC will work to ensure that any such 

decisions by examiners are made 

consistently. Additionally, this 

regulation addresses whether certain 

deposits are considered brokered, but 

nothing in this final rule changes the 

FDIC’s or other federal regulators’ 

authorities under section 8 or section 39 

of the FDI Act. 

F. Alternatives 

The FDIC is adopting these 

comprehensive changes to the brokered 

deposit regulations after considering 

comments received pursuant to the 

ANPR and NPR and evaluating 

alternative options for modernizing the 

regulations. The FDIC considered a 

number of alternative approaches, 

including taking more incremental 

approaches through which more limited 

changes would be made. Additionally, 

the FDIC considered more narrowly 

revisiting certain existing staff 

interpretations to identify those that 

should be updated. However, the FDIC 

ultimately determined that the best 

course of action was to take a fresh, 

holistic look at the regulations and 

interpretations, and establish a new 

framework that reflects technological 

and other changes in the banking 

industry over the past three decades and 

is consistent with the FDI Act. 

G. Expected Effects 

As described previously, the final rule 

amends the FDIC’s regulations that 

implement provisions of section 29 

regarding brokered deposits. The final 

rule creates a new framework for 

analyzing certain provisions of the 

statutory definition of ‘‘deposit broker.’’ 

Further, the final rule amends one of the 

ten regulatory exceptions to the 

definition of ‘‘deposit broker.’’ The 

aggregate effect likely would be that 

some amount of deposits currently 

reported as brokered deposits will no 

longer be so reported. 

As of June 30, 2020, there were 5,075 

insured depository institutions holding 

approximately $21.2 trillion in assets 

and $15.6 trillion in domestic deposits. 

Of those domestic deposits, $1.2 trillion 

(7.7 percent) are currently classified as 

brokered deposits. Approximately 38 

percent (1,932) of FDIC-insured 

institutions reported some positive 

amount of brokered deposits. These 

insured institutions accounted for the 

vast majority of banking industry assets 

and deposits—almost $19.5 trillion 

(92.0 percent) of assets and almost $14.1 

trillion (90.4 percent) of domestic 

deposits.61

Traditional brokered CDs will 

continue to be defined by the rule as 

brokered deposits and subject to the 

associated statutory and regulatory 

restrictions. Certain types of deposits, 

notably deposits placed by agents or 

nominees that meet one of the identified 

‘‘designated exceptions’’ or otherwise 

satisfy criteria set forth in the revisions 

made in this final rule to the primary 

purpose exception will not be 

considered brokered deposits. The 

amount of deposits currently reported as 

brokered that may be re-designated as 

non-brokered as a result of the rule may 

be material. 62 However, a reliable 

estimate of this change in designation is 

not possible with the information 

currently available to the FDIC. 

There are potentially five broad 

categories of effects of the rule: Effects 

on consumers and economic activity; 

effects applicable to potentially any 

insured institution; effects applicable to 

less than well-capitalized institutions; 

effects applicable to nonbank entities 

that may or may not be deemed deposit 

brokers; and reporting compliance 

effects on covered entities. 

1. Consumers and the Economy 

The final rule amends the FDIC’s 

brokered deposit regulations to reflect 

recent technological changes and 

innovations. The rule generates benefits 

to banks and consumers if deposit 

placement arrangements that do not 

present undue funding risk are not 

classified as brokered deposits. Changes 

and innovations in deposit placement 

activity are likely to continue, 

suggesting that demand for, and 

utilization of, certain types of deposit 

accounts currently classified as 

brokered are likely to grow in the years 

to come. These could include the use of 

technology services that help enable 

payments and online marketing 

channels that refer customers to certain 

banks. To the extent that the rule results 

in such deposits as being non-brokered, 

it could support ease of access to 

deposit placement services for U.S. 

consumers. Unbanked or underbanked 

customers, for example, may benefit 

from increased ease of access to deposit 

placement services because banks 

would be more willing to accept 

deposits that would be no longer 

considered brokered under the final 


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6762 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 

63See FDIC’s 2011 Study on Core and Brokered 

Deposits, July 8, 2011. 

64 Information based on June 30, 2020 

Consolidated Reports of Condition and Income. The 

10 institutions do not include any quantitatively 

well capitalized institutions that may have been 

administratively classified as less than well 

capitalized. See generally, FDIC—12 CFR 

324.403(b)(1)(v); Board of Governors of the Federal 

Reserve System—12 CFR 208.43(b)(1)(v); Office of 

the Comptroller of the Currency—12 CFR 

6.4(c)(1)(v). 

65Call Report Data, June 30, 2020. 

rule. Additionally, to the extent that the 

rule supports greater utilization of 

deposits currently classified as brokered 

deposits, but classified as non-brokered 

under the rule, it could increase the 

funds available to insured depository 

institutions for lending to U.S. 

consumers. If the rule does result in an 

increase in bank lending, some 

associated increase in measured U.S. 

economic output would be expected, in 

part because the imputed value of the 

credit services banks provide is a 

component of measured GDP. 

2. All Insured Institutions 

The rule could immediately affect the 

1,932 FDIC-insured institutions 

currently reporting brokered deposits. 

Going forward, the rule could affect all 

5,075 FDIC-insured institutions whose 

decisions regarding the types of deposits 

to accept could be affected. 

The final rule benefits insured 

institutions and other interested parties 

by providing greater legal clarity 

regarding the classification and 

treatment of brokered deposits. As result 

of this increased clarity, the final rule 

reduces the extent of reliance by banks 

and third parties on FDIC Staff Advisory 

opinions and informal written and 

telephonic inquiries with FDIC staff. 

This would have two important 

benefits. First, the likelihood of 

inconsistent outcomes, where some 

institutions may report certain types of 

deposits as brokered and others do not, 

would be reduced. Second, to the extent 

the classification of deposits as brokered 

or non-brokered can be clearly 

addressed in regulation, the need for 

potentially time-consuming staff 

analyses can be minimized. 

The FDIC has heard from a number of 

insured institutions that they perceive a 

stigma associated with accepting 

brokered deposits. Historical experience 

has been that higher use of deposits 

currently reported to the FDIC as 

brokered has been associated with 

higher probability of bank failure and 

higher DIF loss rates.63 The funding 

characteristics of brokered deposits, 

however, are non-uniform. For example, 

brokered CDs are often used by bank 

customers searching for relatively high 

yields and safety with deposit 

insurance, rather than as part of a 

relationship with a bank, and as such 

these deposits may be less stable and 

more subject to deposit interest rate 

competition. The behavior of other 

types of deposit placement 

arrangements, such as deposits placed 

through certain deposit sweep 

arrangements or that underlie prepaid 

card programs, may be more based on a 

business relationship than on interest 

rate competition. Given limitations on 

available data, however, historical 

studies have not been able to 

differentiate the experience of banks 

based on the different types of deposits 

accepted. To the extent the rule reduces 

bankers’ perception of a stigma 

associated with certain types of 

deposits, more institutions may be 

incentivized to accept such deposits. 

The rule could incentivize the 

development of banking relationships 

between banks and other firms. The new 

opportunities could spur growth in the 

types of companies that provide deposit 

placement services, particularly for 

third parties that receive the primary 

purpose exception, potentially resulting 

in greater access to, or use of, bank 

deposits by a greater variety of 

customers. It is difficult to accurately 

estimate such potential effects with the 

information currently available to the 

FDIC, because such effects depend, in 

part, on the future commercial 

development of such activities. 

FDIC deposit insurance assessments 

would be affected by the changes, 

potentially affecting any insured 

institution that currently accepts 

brokered deposits or might do so in the 

future. Since 2009, insured institutions 

with a significant concentration of 

brokered deposits may pay higher 

quarterly assessments, depending on 

other factors. To the extent that deposits 

currently defined as brokered would no 

longer be considered brokered deposits 

under this rule, a bank’s assessment 

may decrease, all else equal. Certain 

calculations required under the 

Liquidity Coverage Ratio and NSFR 

rules applicable to some large banks 

could also be affected by the rule. 

Available data do not allow for a 

reliable estimate of the amount of 

deposits currently designated as 

brokered that would no longer be 

designated as such under the rule, and 

consequently do not allow for an 

estimate of effects on assessments or the 

reported Liquidity Coverage Ratio and 

NSFR. 

Insured institutions could benefit 

from the rule by having greater certainty 

and greater access to funding sources 

that would no longer be designated as 

brokered deposits, thereby easing their 

liquidity planning in the event they fall 

below well capitalized and become 

subject to the restrictions set forth in the 

law and regulations and reducing the 

likelihood that a liquidity failure of an 

otherwise viable institution might be 

precipitated by the brokered deposit 

regulations. Another benefit of the rule 

could result if greater access to funding 

sources supported insured institutions’ 

ability to provide credit. However, these 

effects are difficult to estimate because 

the decision to receive third party 

deposits depends on the specific 

financial conditions of each bank, 

fluctuating market conditions for third 

party deposits, and future management 

decisions. 

3. Less Than Well-Capitalized 

Institutions 

As discussed previously, the 

acceptance of brokered deposits is 

subject to statutory and regulatory 

restrictions for banks that are not well 

capitalized. Adequately capitalized 

banks may not accept brokered deposits 

without a waiver from the FDIC, and 

banks that are less than adequately 

capitalized may not accept them at all. 

As a result, adequately capitalized and 

undercapitalized banks generally hold 

less brokered deposits. By generally 

reducing the scope of deposits that are 

considered brokered, the rule allows not 

well capitalized banks to increase their 

holdings of deposits that are currently 

reported as brokered but will not be 

reported as brokered under the final 

rule. As of June 30, 2020, there are only 

10 adequately capitalized and 

undercapitalized banks.64 These banks 

hold approximately $2.5 billion in 

assets, $1.7 million in domestic 

deposits, and $21.7 million in brokered 

deposits.65 These banks could be 

directly affected by the rule in that they 

could potentially accept more or 

different types of deposits currently 

designated as brokered. 

Broadly speaking, with respect to 

future developments, another aspect of 

brokered deposit restrictions is that, 

consistent with their statutory purpose, 

they act as a constraint on growth and 

risk-taking by troubled institutions. 

Conversely, as noted previously, access 

to funding can prevent needless 

liquidity failures of viable institutions. 

4. Entities That May or May Not Be 

Deposit Brokers 

The revisions to the brokered deposit 

regulations would likely give rise to 

some activity by nonbank third parties 

seeking to determine whether they are, 

or are not, deposit brokers under the 


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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 6763 

66 2019 FINRA Industry Snapshot, pg. 13, https:// 

www.finra.org/sites/default/files/2020%20

Industry%20Snapshot.pdf. 67 Deposit brokers are classified according to the 

2017 North American Industry Classification 

System as belonging to the ‘‘Miscellaneous 

Financial Investment Activities’’ industry (NAICS 

code 523999). See U.S. Census Bureau, 2017 County 

Business Patterns Data, available at https://

www.census.gov/data/datasets/2017/econ/cbp/ 

2017-cbp.html. 

68This average number reflects that not all 

approved applications are expected to require 

ongoing reporting. 

69For the applications relating to exceptions from 

the definition of ‘‘deposit broker,’’ the FDIC used 

the wage estimates from the Bureau of Labor 

Statistics (BLS) ‘‘National Industry Specific 

Occupational Employment and Wage Estimates: 

Securities, Commodity Contracts, and Other 

Financial Investments and Related Activities 

Sector’’ (May 2018), while for the Application for 

Waiver of Prohibition on Acceptance of Brokered 

Deposits, the FDIC used the wage estimates from 

the BLS ‘‘National Industry-Specific Occupational 

Employment and Wage Estimates: Depository Credit 

Intermediation Sector’’ (May 2018). Other BLS data 

used were the Employer Cost of Employee 

Compensation data (June 2019), and the Consumer 

Price Index (June 2019). Hourly wage estimates at 

the 75th percentile wage were used, except when 

the estimate was greater than $100, in which case 

$100 per hour was used, as the BLS does not report 

hourly wages in excess of $100. The 75th percentile 

wage information reported by the BLS in the 

Specific Occupational Employment and Wage 

Estimates does not include health benefits and 

other non-monetary benefits. According to the June 

2019 Employer Cost of Employee Compensation 

data, compensation rates for health and other 

benefits are 33.8 percent of total compensation. 

Additionally, the wage has been adjusted for 

inflation according to BLS data on the Consumer 

Price Index for Urban Consumers (CPI–U), so that 

it is contemporaneous with the non-wage 

compensation statistic. The inflation rate was 1.86 

percent between May 2018 and June 2019. 

rule. This may include submitting 

notices or filing applications by some 

third parties that seek to avail 

themselves of the primary purpose 

exception, or by banks submitting 

notices or filing applications on behalf 

of third parties. In certain 

circumstances, ongoing reporting or 

certification by these entities is also 

expected under the final rule. 

5. Reporting Compliance Costs 

As previously discussed, the final rule 

establishes some reporting obligations 

for certain insured depository 

institutions or nonbank third parties 

that meet the ‘‘deposit broker’’ 

definition by either placing (or 

facilitating the placement of) customer 

deposits at insured depository 

institutions but meet the ‘‘primary 

purpose’’ exception. Specifically, the 

rule provides that entities that wish to 

invoke two of the ‘‘designated 

exceptions’’—the ‘‘25 percent’’ and 

‘‘enabling transactions’’ business 

arrangements—will be required to 

submit a notice to the FDIC. These 

entities will also be subject to either a 

quarterly reporting or annual 

certification requirement. 

The final rule also establishes an 

application process under which any 

agent or nominee that seeks to avail 

itself of the primary purpose exception, 

or an insured depository institution 

acting on behalf of an agent or nominee, 

and does not meet one of the 

‘‘designated exceptions,’’ could request 

that the FDIC consider the agent or 

nominee as meeting the primary 

purpose exception. Entities that meet 

the primary purpose exception via an 

approved application may also be 

subject to periodic reporting 

requirements under the final rule. 

These reporting requirements will 

allow the FDIC to monitor the 

applicability of the primary purpose 

exception. 

Finally, the FDIC may, with notice, 

revoke a primary purpose exception of 

a third party that relies on a ‘‘designated 

exception,’’ if the third party no longer 

meets the criteria for a designated 

exception, the notice or subsequent 

reporting is inaccurate, or the notice 

filer fails to submit the required reports. 

For approved applications, the FDIC 

may, under certain circumstances and 

with adequate justification, require the 

entity to refile a notice, submit an 

application, reapply for approval, 

impose additional conditions on the 

approval, or withdraw a previously 

granted approval, with notice to the 

entity. 

There were 3,517 Financial Industry 

Regulatory Authority (‘‘FINRA’’) 

registered broker-dealer firms in 2019.66

Some of the 3,517 broker-dealers may 

not engage in activity which would 

meet the definition of ‘‘deposit broker’’ 

but for meeting the primary purpose 

exception through the ‘‘25 percent test,’’ 

while some firms that do engage in such 

activity may not be among the 3,517 

FINRA registered broker-dealers. In the 

absence of data to estimate future 

respondents, consistent with the 

changes in the rule relative to the NPR, 

and with its Paperwork Reduction Act 

analysis of this rule, the FDIC assumes 

that 703 firms will submit notices for a 

‘‘designated exception’’ under the 

primary purpose exception based on 

placing less than 25 percent of customer 

assets under administration, in the 

initial year of implementation. Further, 

the FDIC assumes that 176 firms will 

submit notices for a ‘‘designated 

exception’’ under the primary purpose 

exception based on placing less than 25 

percent of customer assets under 

administration, on average each year, an 

ongoing basis. 

According to Census data, there are 

1,223 establishments within the 

industry in which deposit brokers are 

classified.67 Not all 1,223 

establishments engage in deposit 

brokering, and some firms which engage 

in deposit brokering may be classified in 

another industry. In the absence of data 

to estimate future respondents, 

consistent with the changes in the rule 

relative to the NPR, and with its 

Paperwork Reduction Act analysis of 

this rule, the FDIC assumes that 245 

firms will submit notices in reliance on 

the enabling transactions designated 

exception in the initial year of 

implementation. Additionally, the FDIC 

assumes that 245 firms submit 

applications for a primary purpose 

exception in the initial year of 

implementation. Finally, in the absence 

of data to estimate future respondents, 

the FDIC assumes that 61 will file a 

notice in reliance upon the enabling 

transactions designated exception, or a 

designated exception identified in the 

future that requires a notice, and an 

additional 61 will submit an 

application, on average each year, on an 

ongoing basis. 

In the initial year of implementation, 

the FDIC assumes that the notice for the 

‘‘25 percent’’ business relationship will 

be three hours to complete on average, 

and 0.5 hours per quarter each year after 

that. In the initial year of 

implementation, the FDIC assumes that 

the notice for the ‘‘enabling 

transactions’’ will take 5 hours to 

complete on average, and 0.5 hours each 

year after that. In the initial year of 

implementation, the FDIC assumes that 

the application for entities that do not 

meet a ‘‘designated exception,’’ will take 

10 hours to complete on average, and 

0.25 hour per quarter each year 68 after 

that. The FDIC also recognizes there will 

likely be outliers who spend more or 

less time on notices, applications, and 

reporting than the FDIC expects at this 

time, therefore FDIC believes that the 

compliance burden realized by affected 

entities will likely vary from labor hours 

presented. Therefore, based on the 

above assumptions and methodology, 

the FDIC estimates the final rule 

imposes an annual reporting burden of 

5,784 hours for the first year and 497.5 

hours each year after that for all affected 

entities. This equates to estimated 

compliance costs of $613,740 in the first 

year and $51,589 each year after that for 

all affected entities.69

Part II. Interest Rate Restrictions 

A. Policy Objectives 

The policy objective of Part II of this 

final rule is to ensure that deposit 

interest rate caps appropriately reflect 

the prevailing deposit interest rate 


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70 12 U.S.C. 1831f(e). 

71 12 U.S.C. 1831f(g)(3). 

72 Id. 

73 12 U.S.C. 1831f(h). 

74 57 FR 23933 (1992); 74 FR 26516 (2009). 

75The FDIC has not viewed the slight verbal 

variations in these provisions as reflecting a 

legislative intent that they have different meaning 

and so the agency has, through rulemaking, 

construed the same meaning for these two phrases. 

76 12 CFR 337.6(b)(2)(ii), (b)(3)(ii) and (b)(4). The 

FDIC first defined ‘‘significantly higher’’ as 50 basis 

points. 55 FR 39135 (1990). As part of the 1992 

rulemaking, commenters suggested that the FDIC 

define ‘‘significantly higher’’ as 100 basis points. In 

response, the FDIC defined ‘‘significantly higher’’ as 

75 basis points. 

77 57 FR 23933, 23939 (1992); 74 FR 26516, 26520 

(2009). 

78 57 FR 23933 (1992); 74 FR 26516 (2009). 

79 12 CFR 337.6(f). 

80 57 FR 23933, 23938 (June 5, 1992). 

81 74 FR 26516 (2009). The 2009 rulemaking also 

recognized, based on the FDIC’s experience, that 

some institutions still do compete for particular 

products within their local market areas, and 

provided a safe harbor for those institutions. 

environment, while continuing to 

ensure that less than well capitalized 

institutions do not solicit or accept 

deposits by offering interest rates that 

significantly exceed prevailing rates on 

comparable deposit products. 

B. Background 

Under Section 29 of the FDI Act, well 

capitalized institutions are not subject 

to any interest rate restrictions. 

However, the statute imposes interest 

rate restrictions on insured depository 

institutions that are less than well 

capitalized, as defined in Section 38 of 

the FDI Act. The statutory restrictions 

are described in detail below. 

Brokered deposits accepted pursuant 

to a waiver and certain reciprocal 

deposits. Institutions that are less than 

well capitalized may not pay a rate of 

interest on brokered deposits accepted 

pursuant to a waiver, or on reciprocal 

deposits excluded by Section 29 from 

being considered brokered deposits, that 

‘‘significantly exceeds’’ the following: 

‘‘(1) The rate paid on deposits of similar 

maturity in such institution’s normal 

market area for deposits accepted in the 

institution’s normal market area; or (2) 

the national rate paid on deposits of 

comparable maturity, as established by 

the [FDIC], for deposits accepted outside 

the institution’s normal market area.’’ 70

Adequately capitalized institutions. 

Institutions that are adequately 

capitalized may not engage in the 

solicitation of deposits by offering rates 

that ‘‘are significantly higher than the 

prevailing rates of interest on deposits 

offered by other insured depository 

institutions in such depository 

institution’s normal market area.’’ 71 For 

institutions in this category, the statute 

restricts interest rates in an indirect 

manner. Rather than simply setting forth 

an interest rate restriction for adequately 

capitalized institutions to accept 

brokered deposits, the statute defines 

the term ‘‘deposit broker’’ to include 

‘‘any insured depository institution that 

is not well capitalized . . . which 

engages, directly or indirectly, in the 

solicitation of deposits by offering rates 

of interest which are significantly higher 

than the prevailing rates of interest on 

deposits offered by other insured 

depository institutions in such 

depository institution’s normal market 

area.’’ 72 In other words, the depository 

institution itself is a ‘‘deposit broker’’ if 

it solicits deposits by offering rates 

significantly higher than the prevailing 

rates in its own ‘‘normal market area.’’ 

Without a waiver, the institution cannot 

accept deposits from a ‘‘deposit broker.’’ 

Thus, the institution cannot accept 

these deposits from itself. In this 

indirect manner, the statute prohibits 

institutions in this category from 

soliciting deposits by offering rates 

significantly higher than the prevailing 

rates in the institution’s ‘‘normal market 

area.’’ 

Undercapitalized institutions. In this 

category, institutions may not solicit 

deposits by offering rates ‘‘that are 

significantly higher than the prevailing 

rates of interest on insured deposits (1) 

in such institution’s normal market area; 

or (2) in the market area in which such 

deposits would otherwise be 

accepted.’’ 73

C. Regulatory Approach 

The FDIC has implemented the 

statutory interest rate restrictions 

through two rulemakings.74 While the 

statutory provisions noted above set 

forth a basic framework based upon 

capital categories, they do not provide 

certain key details, such as definitions 

of the terms ‘‘significantly exceeds,’’ 

‘‘significantly higher,’’ ‘‘market,’’ and 

‘‘national rate.’’ As a result, the FDIC 

defined these key terms via rulemaking 

in 1992. Both the ‘‘national rate’’ 

calculation and the application of the 

interest rate restrictions were updated in 

a 2009 rulemaking. 

‘‘Significantly Exceeds’’ or 

‘‘Significantly Higher.’’ 75 Through both 

the 1992 and the 2009 rulemakings, the 

FDIC has interpreted that a rate of 

interest ‘‘significantly exceeds’’ another 

rate, or is ‘‘significantly higher’’ than 

another rate, if the first rate exceeds the 

second rate by more than 75 basis 

points.76 In adopting this standard in 

1992, and subsequently retaining it in 

2009, the FDIC offered the following 

explanation: ‘‘Based upon the FDIC’s 

experience with the brokered deposit 

prohibitions to date, it is believed that 

this number will allow insured 

depository institutions subject to the 

interest rate ceilings . . . to compete for 

funds within markets, and yet constrain 

their ability to attract funds by paying 

rates significantly higher than prevailing 

rates.’’ 77

‘‘Market.’’ In the FDIC’s regulations, 

as implemented through both the 1992 

and 2009 rulemaking, the term ‘‘market’’ 

is ‘‘any readily defined geographical 

area in which the rates offered by any 

one insured depository institution 

soliciting deposits in that area may 

affect the rates offered by other insured 

depository institutions in the same 

area.’’ 78 The FDIC determines an 

institution’s market area on a case-bycase basis.79

The ‘‘National Rate.’’ As part of the 

1992 rulemaking, the ‘‘national rate’’ 

was defined as follows: ‘‘(1) 120 percent 

of the current yield on similar maturity 

U.S. Treasury obligations; or (2) In the 

case of any deposit at least half of which 

is uninsured, 130 percent of such 

applicable yield.’’ In defining the 

‘‘national rate’’ in this manner, the FDIC 

understood that the spread between 

Treasury securities and depository 

institution deposits can fluctuate 

substantially over time but relied upon 

the fact that such a definition is 

‘‘objective and simple to administer.’’ 80

By using percentages (120 percent, or 

130 percent for wholesale deposits, of 

the yield on U.S. Treasury obligations) 

instead of a fixed number of basis 

points, the FDIC hoped to ‘‘allow for 

greater flexibility should the spread to 

Treasury securities widen in a rising 

interest rate environment.’’ 

Additionally, at the time of the 1992 

rulemaking, the FDIC did not have 

readily available data on actual deposit 

rates paid and used Treasury rates as a 

proxy. 

Prior to the 2009 rulemaking, yields 

on Treasury securities plummeted 

precipitously, driven by global 

economic uncertainties, which resulted 

in a ‘‘national rate’’ that was lower than 

deposit rates offered by many 

institutions. As part of the 2009 

rulemaking, with access to data on 

offered rates available on a substantially 

real-time basis, the FDIC redefined the 

‘‘national rate’’ as ‘‘a simple average of 

rates paid by all insured depository 

institutions and branches for which data 

are available.’’ 81

The ‘‘Prevailing Rate.’’ The FDIC has 

recognized, as part of its regulation on 

interest rate restrictions, that 


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82 74 FR 26516, 26519 (2009). 83The average of the top ten rates paid for 12 

month CDs is meant to illustrate a competitive 

offering rate for wholesale insured deposits and 

show the general direction of the movement of the 

market for deposit rates. 

competition for deposit pricing has 

become increasingly national in scope. 

Therefore, through the 2009 rulemaking, 

the FDIC presumes that the prevailing 

rate in an institution’s market area is the 

FDIC-defined national rate.’’ 82

D. Need for Further Rulemaking 

The current interest rate cap 

regulations became effective in 2010 

and were adopted to modify the 

previous national rate cap (based on 

U.S. Treasury securities) that had 

become overly restrictive. Chart 1 below 

reflects the current national rate cap and 

the average of the top ten rates paid for 

a 12-month CD between 2010 and the 

present.83 Chart 1 illustrates that 

between 2010 and approximately the 

second quarter of 2015, rates on 

deposits were quite low, even for the 

top rate payers. For this period, the 

current regulation’s methodology for 

calculating the national rate, to which 

75 basis points is added to arrive at the 

national rate cap, resulted in a national 

rate cap that allowed less than well 

capitalized institutions to easily 

compete with even the highest rates 

paid on the 12-month CD during this 

timeframe. 

However, from about July 2015 

through February 2020, the current 

national rate methodology resulted in a 

national rate for the 12-month CD that, 

when 75 basis points were added, 

resulted in a national rate cap that 

remained relatively unchanged. During 

this period, the FDIC observed that the 

relatively unchanged national rate could 

restrict less than well-capitalized banks 

from competing for market-rate funding. 

Market conditions caused similar 

changes in the rates of other deposit 

products compared to the applicable 

rate cap, although the timing of when 

such changes occurred varied from 

product to product. Due to the COVID– 

19 emergency and the resulting effect on 

the economy beginning in March 2020, 

deposit rates in general, including the 

national rate and the rates paid by the 

top rate payers dropped, so that less 

than well capitalized institutions may 

again easily compete with even the 

highest rates paid on the 12-month CD 

under the current national rate cap. 

There are several reasons that the 

national rate cap remained fairly 

unchanged from mid-2015 to 

approximately February 2020. 

Primarily, interest rates were relatively 

low following the financial crisis that 

began in 2007. Towards the end of 2015, 

however, some banks began to increase 

rates paid on deposits as the Federal 

Reserve increased its federal funds rate 

targets. During this time, and up to the 

present day, the largest banks have 

been, on average, slower to raise their 

published interest rates on deposits. 

This has held down the simple average 

of rates offered across all insured banks 


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6766 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 

84 85 FR 7453 (Feb. 10, 2020). 

85 84 FR 46470 (Sept. 4, 2019). 

86 In the proposal, the FDIC discussed other ways 

it had considered to set the national rate cap, 

including setting at: The higher of the current 

interest rate cap and the one that preceded it from 

1992 to 2009, and the average of rates paid by the 

top payers. 84 FR 46470, 46476–46477. The FDIC 

also solicited comment on whether there were 

better options for setting a proxy for what it means 

to ‘‘significantly exceed’’ a prevailing market rate 

when rates converge. 84 FR 46470, 46492–46493. 

87 12 CFR 337.6(f). 

88The procedures for seeking such a 

determination are set forth in FIL–69–2009 (Dec. 4, 

2009). As explained in the FIL, an insured 

depository institution can request a high rate 

determination for its market area(s) by sending a 

letter to the applicable FDIC regional office. After 

receiving the request, the FDIC would make a 

determination as to whether the bank’s market area 

is a high-rate area. If the FDIC agreed that the bank 

was operating in a high-rate area, the bank would 

need to calculate and retain evidence of the 

prevailing rates for specific deposits in its local 

market area. The question and answer attachment 

was revised in November 1, 2011. 

and branches. Additionally, institutions, 

including the largest banks, had been 

offering more deposit products with 

special features, such as rewards 

checking, higher rates on odd-term 

maturities, negotiated rates, and cash 

bonuses, that are not included in the 

calculation of the published national 

rate. 

Because of these developments, the 

majority of the institutions subject to the 

interest rate caps sought determinations 

from the FDIC to use the local rate for 

deposits obtained locally as the 

prevailing rate during the period when 

the national rate cap remained relatively 

unchanged. The national rate cap, 

however, remained applicable to 

deposits that these institutions obtained 

from outside their respective normal 

market area, including through the 

internet. 

Setting the national rate cap at too 

low of a level could prohibit less than 

well capitalized banks from competing 

for deposits and create an unintentional 

liquidity strain on those banks 

competing in national markets. For 

example, a national rate cap that is too 

low could destabilize a less than well 

capitalized bank that gathers deposits 

outside its local market area just as it is 

working on improving its financial 

condition. Preventing such institutions 

from being competitive for deposits, 

when they are most in need of 

predictable liquidity, can create severe 

funding problems. Additionally, a rate 

cap that is too low may be inconsistent 

with the statutory requirement that an 

insured depository institution is only 

prohibited from offering a rate that 

‘‘significantly exceeds’’ or is 

‘‘significantly higher’’ than the 

prevailing rate. This could 

unnecessarily harm the institution, 

especially when liquidity planning is 

essential for safety and soundness. 

E. Advance Notice of Proposed 

Rulemaking and Notice of Proposed 

Rulemaking 

On September 4, 2019, the FDIC 

published in the Federal Register a 

notice of proposed rulemaking (‘‘Interest 

Rate NPR’’),84 that proposed to amend 

the national rate, the national rate cap, 

the local market area, and the local 

market rate cap, as described below.85

1. National Rate 

To address concerns raised in 

response to the ANPR about the current 

calculation of the ‘‘national rate,’’ from 

which the current national rate cap is 

derived, the FDIC proposed to replace 

the current ‘‘national rate’’ definition, 

which is based on the simple average of 

rates paid by all insured depository 

institutions and branches, with a 

definition based on a weighted average 

of rates paid by all insured depository 

institutions on a given deposit product, 

where the weights are institutions’ 

respective market share of domestic 

deposits. This change to the calculation 

of the ‘‘national rate’’ was intended to 

address comments received in response 

to the ANPR that expressed concern that 

the current national rate definition 

resulted in a national rate cap that is too 

low because the largest banks with the 

most branches have a disproportional 

effect on the national rate, and that the 

branch-based methodology minimized 

the significance of online-focused 

banks, which have few or no branches 

but tend to pay the highest rates. 

2. National Rate Cap 

In the Interest Rate NPR, the FDIC 

proposed to replace the current national 

rate cap, i.e., the national rate plus 75 

basis points, with a proposed definition 

of ‘‘national rate cap’’ that is the higher 

of: (1) The rate offered at the 95th 

percentile of rates weighted by domestic 

deposit share; or (2) the national rate 

plus 75 basis points, with modifications 

to how the national rate is calculated, as 

described below. 

The FDIC stated that it intended that 

the proposed two-prong national rate 

cap be effective across economic and 

interest rate cycles. During periods of 

low interest rates such as during the 

2008 to 2015 period and the current, 

pandemic environment since March 

2020, the second prong, i.e., the national 

rate plus 75 basis points, would likely 

be the governing prong of the proposed 

national rate cap. During more normal 

interest rate environments, such as 

between 1992 and 2008, and between 

2015 and early 2020, the other prong, 

the 95th percentile of rates, would likely 

be the national rate cap. The proposal 

was intended to provide a more 

balanced and dynamic national rate cap 

that would ensure that less than well 

capitalized institutions have the 

flexibility to access market-rate funding, 

yet prevent them from offering a rate 

that significantly exceeds the prevailing 

rate for a particular product, in 

accordance with Section 29.86

3. Local Rate Cap 

Under the FDIC’s the current 

regulation, there is a presumption that 

the prevailing rate or effective yield in 

the relevant market is the national rate 

unless the FDIC determines, in its sole 

discretion based on available evidence, 

that the effective yield in that market 

differs from the national rate. If a bank 

believes that the posted national rates 

are lower than the actual prevailing 

rates in the bank’s normal market 

area(s), then the bank may request a 

high rate area determination from the 

FDIC. In determining whether the bank 

is in a high rate area, the FDIC could use 

segmented market rate information (for 

example, evidence by State, county or 

metropolitan statistical area).87 If the 

FDIC agrees that the bank was in a high 

rate area,88 the institution would be 

permitted to pay as much as 75 basis 

points above the local prevailing rate for 

deposits on those products solicited in 

its local market areas. For deposits 

received from outside its local market 

(including through the internet), the 

institution would have to offer rates that 

did not exceed the national rate cap. 

Also, the FDIC could allow evidence as 

to the rates offered by credit unions but 

only if the insured depository 

institution competed directly with the 

credit unions in the particular market. 

In the Interest Rate NPR, the FDIC 

proposed to establish a local market rate 

cap that is 90 percent of the highest 

offered rate in the institution’s local 

market area for a specific deposit 

product. Specifically, the proposal 

would allow less than well capitalized 

institutions to provide evidence that any 

bank or credit union with a physical 

presence in its local market area offers 

a rate on a particular deposit product in 

excess of the national rate cap. If 

sufficient evidence is provided, then the 

less than well capitalized institution 

would be allowed to offer an interest 

rate that is 90 percent of the highest 

offered rate in the local market area. 

The Interest Rate NPR would 

eliminate the current two-step process 

where less than well capitalized 

institutions request a high rate 


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determination from the FDIC and, if 

approved, calculate the prevailing rate 

within local markets. Instead, a less 

than well capitalized institution would 

need to notify its appropriate FDIC 

regional office that it intends to offer a 

rate that is above the national rate cap 

and provide evidence that an insured 

depository institution or credit union in 

the local market area is offering a rate 

in its local market area in excess of the 

national rate cap for a comparable 

deposit product. As described above, 

the institution would then be allowed to 

offer 90 percent of the rate offered by 

the insured depository institution or 

credit union in the institution’s local 

market area. The institution would be 

expected to calculate the local rate cap 

periodically, and, upon the FDIC’s 

request, provide the documentation to 

the appropriate FDIC regional office and 

to examination staff during subsequent 

examinations. 

F. Discussion of Comments 

In response to the Interest Rate NPR, 

the FDIC received a total of 43 

comments. Three of the comments were 

from national associations representing 

stakeholders in the banking industry; 

three were from state-level associations 

representing stakeholders in the banking 

industry in those states; one comment 

was from another trade association; one 

was from a state banking department, 

one comment was from a law firm on 

behalf of a bank, and 30 comments were 

from bankers or banks, including 12 

similar emails from bankers. The details 

of these comments are discussed below. 

1. Discussion of Public Comment on the 

National Rate 

Several commenters raised concerns 

about the proposed methodology for 

calculating the national rate. For 

example, a national trade association for 

the banking industry and several 

bankers raised concerns regarding the 

use of a weighted approach. Some 

commenters wrote that they believed 

that the proposed methodology 

continued to give undue weight to the 

largest institutions with a traditional 

branch based model. One commenter 

indicated that it remained concerned 

about the continued use of weighting, 

whether it be by branch, market share, 

or size because they believe that 

weighting tends to misrepresent actual 

market share. Several commenters urged 

the FDIC to include rates paid by credit 

unions and internet banks, stating that 

including those rates would make for a 

more accurate national rate calculation. 

The commenters suggested that such 

rates are often higher and thus not 

including them would cause the 

national rate (and, ultimately, the 

national rate cap) to be too low, making 

it harder for banks, particularly 

community banks, to compete for or 

attract deposits. 

A trade association recommended that 

credit union rates be included as part of 

the national rate calculation because 

credit unions compete on both a 

national and local scale with insured 

depository institutions. 

2. Discussion of Public Comment on the 

National Rate Cap 

Most commenters agreed that the 

current interest rate cap methodology 

needed to be revised and no commenter 

recommended that the current 

methodology remain unchanged. 

Several commenters raised general 

concerns about data quality and 

transparency, in particular with respect 

to the 95th percentile. One commenter 

questioned the quality of the underlying 

data used to calculate the rate. One 

commenter wrote that the data that is 

currently being collected and used by 

the FDIC to calculate the rate cap is not 

always an accurate representation of 

actual rates that many banks are willing 

to pay and are actively paying and that 

while the 95th percentile would be an 

improvement over the current 

methodology, it still does not produce a 

rate cap high enough to exceed 

prevailing rates in some economic 

cycles. Several argued that the national 

rate is not robust enough and should be 

based on publicly available, transparent 

data. One commenter stated that it is 

important to have a transparent and 

market-based national rate. Another 

argued that the 95th percentile would 

not be effective because it is not an 

accurate representation of actual rates 

that many banks are willing to pay and 

actively paying, and that if the FDIC 

used the 95th percentile it should add 

75 basis points to that rate. One 

commenter stated that the 95th 

percentile still gives large banks too 

much influence over the calculation of 

the rate. 

Several commenters recommended 

additional changes and requested that 

the proposed methodology be revised in 

the final rule. A trade association 

representing banks recommended that 

the FDIC adopt a rate cap that is the 

higher of the rate cap using the 

methodology in place between 1992 and 

2009 (the Treasuries-based rate cap), 

and the rate cap using the methodology 

currently in place but modified so that 

it is 100 basis points above the average 

instead of 75 basis points and so that the 

average is calculated assigning each 

bank the same weight, with the 

additional change to include credit 

unions. Another trade association 

representing banks recommended that 

the FDIC set the national rate cap using 

a formula that it submitted, and implicit 

in that formula was the higher of the 

pre-2009 Treasuries-based rate and the 

current rate, with modifications. 

A trade association recommended that 

the FDIC adopt a national rate cap of the 

higher of the current rate cap or the 

Treasuries-based rate cap in place from 

1992 to 2009. A State banking 

commissioner recommended that the 

FDIC set the national rate cap at the 

higher of the following 4 measures: (1) 

The proposed national rate cap 

methodology; (2) the 1992–2009 

methodology, i.e., 120 percent or 130 

percent of the comparable U.S. Treasury 

plus 75 basis points; (3) the average of 

the top 25 rates offered in the nation; 

and (4) the highest rate offered by a 

local institution for a particular deposit 

product. For renewals of time deposits, 

the State banking commissioner 

recommended that a bank be permitted 

to pay the rate currently paid to the 

customer for the same or lesser amount 

and for the same or lesser term. 

Commenters generally recommended 

that the national rate cap be more 

transparent by basing it on publicly 

available market data such as Treasury 

and federal funds rates. 

A banker recommended that the FDIC 

make a list of the highest rates offered 

to consumers for comparable products, 

select a certain number of the highest 

rates, e.g., 25 and average those 25 

highest rates. To accommodate the 

statutory language, the banker suggested 

that the average be the national rate and 

the FDIC allow 110 percent of that 

average as the level that does not 

significantly exceed the national rate. 

For nonmaturity deposits, one 

commenter suggested that the national 

rate cap be based on the federal funds 

rate, 1-month Treasuries rate, FHLB 

overnight funds rate, or rates offered by 

listing services. Another banker 

suggested using the 3-month Treasuries 

rate or the federal funds rate, plus 75 

basis points. Still another commenter 

suggested that nonmaturity products 

should use either the pre-2009 

methodology or the rates on 1-year 

Treasuries. 

3. Discussion of Public Comment on 

Local Rate Cap 

The FDIC received several comments 

regarding the local rate cap proposal. 

One national trade association 

representing banks, as well as a state 

trade association, recommended that the 

FDIC use 125 percent, instead of the 

proposed 90 percent, of a competing 

interest rate as the upper limit, which it 


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6768 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 

claimed would allow a less than well 

capitalized bank to offer competitive 

rates on deposits while not going so far 

above normal market rates as to 

exacerbate potential safety and 

soundness issues. Another national 

association representing stakeholders in 

the banking industry recommended that 

a less than well capitalized institution 

be permitted to offer at least up to 95 

percent of the competing institution’s 

rate on a particular product in order to 

allow additional flexibility. 

A state-level banking association 

recommended that internet rates and 

listing service rates be considered when 

deciding the local rates with which an 

institution competes. A banker stated 

that the proposal is better than the 

current method of calculating local 

rates, but suggested that the calculation 

include internet rates. 

Commenters from more rural areas 

drew a distinction between funding 

operations in rural areas versus funding 

operations in more urban settings. One 

commenter wrote that banks in rural 

areas may not have access to sufficient 

local deposits and need to be able to 

attract deposits through other 

mechanisms, such as online. One 

commenter suggested that caps should 

relate to a bank’s funding method, as 

there are often different rates offered at 

branches, on-line at the same branch, 

and at a branchless bank. A single rate 

may result in a cap that is too high for 

banks with many branches and too low 

for branchless banks. 

4. Discussion of Other Comments 

One national trade association 

commended the FDIC for revising its 

Risk Management Supervision Manual 

of Examination Policies to clarify that 

national rate caps apply only to 

institutions that are less than well 

capitalized. Despite this recent 

clarification to the Manual, several 

bankers urged the FDIC to make clear to 

its examiners that the national rate cap 

may not be used to evaluate well 

capitalized banks and should not be 

used as a proxy to evaluate financial 

products of well capitalized banks. 

One banker reiterated a comment he 

made in response to the ANPR that the 

interest rate restrictions should not 

apply to a bank that has capital ratios 

that satisfy the well capitalized category 

but is deemed adequately capitalized 

because it is subject to a consent 

agreement that includes a capital 

maintenance provision. The commenter 

indicated that applying the interest rate 

restrictions to such an institution serves 

as a strong disincentive to investors 

injecting additional new capital into an 

institution experiencing difficulties 

because there is no guarantee the FDIC 

will not impose onerous rate restrictions 

regardless of the amount of capital 

invested. 

G. The Final Rule 

As described in further detail below, 

the final rule amends the FDIC’s 

methodology for calculating the national 

rate, the national rate cap, and the local 

rate cap. The final rule also provides a 

new simplified process for institutions 

that seek to offer a competitive rate 

when the prevailing rate in an 

institution’s local market area rate 

exceeds the national rate cap. 

1. National Rate 

The FDIC is adopting the national rate 

methodology generally as proposed, but 

revised to include the rates offered by 

credit unions. After considering the 

comments that indicated that credit 

unions compete with banks on a 

national scale, the FDIC is finalizing the 

proposed national rate definition, 

replacing the interest rate average 

weighted by branches with an average 

where each institution’s interest rate is 

weighted by its share of deposits, with 

the addition of credit union rates. As 

described in the Interest Rate NPR, 

calculating the national rate by market 

share, rather than branch count, more 

accurately reflects the marketplace, and 

provides more emphasis on institutions 

with large or exclusive internet presence 

as described by commenters. However, 

the FDIC has not been able to find 

sufficient reliable, robust data to include 

in its national rate calculation the 

interest rates on deposit products with 

special features, such as rewards 

checking, off-tenor maturities, 

negotiated rates, cash bonuses, and noncash rewards. 

2. National Rate Cap 

In this final rule, the FDIC is adopting 

the proposed national rate cap with a 

modification in response to comments. 

This formulation retains one prong of 

the national rate cap that was proposed, 

i.e., the national rate, weighted by 

deposits (and now including credit 

unions as described above), plus 75 

basis points, which will likely be the 

higher of the rates produced by the two 

proposed prongs in low interest rate 

environments such as the period 

between 2008 and 2015 and in the 

current period since March 2020. 

However, the FDIC has replaced the 

other proposed prong, the rate offered at 

the 95th percentile of rates weighted by 

domestic deposit share, which would 

likely be the higher of the rates 

produced by the two prongs during 

more normal market conditions. For this 

prong, the final rule substitutes a rate 

that is 120 percent of the current yield 

on similar maturity U.S. Treasury 

obligations, plus 75 basis points. For 

nonmaturity deposits, the second prong 

will be the federal funds rate of interest, 

plus 75 basis points. This method is 

consistent with the alternative that was 

set forth in the proposal. 

Thus, the national rate cap being 

adopted is the higher of: (1) The 

national rate, as revised to be based on 

weighting by deposits rather than 

branches (and including credit unions), 

plus 75 basis points; or (2) 120 percent 

of the current yield on similar maturity 

U.S. Treasury obligations, plus 75 basis 

points. The Treasury-based second 

prong also provides that, for 

nonmaturity deposits, the prong would 

be the federal funds rate, plus 75 basis 

points. 

The FDIC is replacing the proposed 

95th percentile prong with a cap based 

on Treasury yields or federal funds, 

because, and as noted in the Interest 

Rate NPR, there are certain data 

limitations with the proposed 

methodology. Specifically, the data 

gathered from third party sources is 

based upon information provided 

directly by institutions or made 

available via public sources. As such, 

some rates being offered for certain 

products are left unreported or 

unpublished and therefore may not be 

captured as part of the data set used to 

determine the proposed 95th percentile 

prong. 

These limitations are more apparent 

today than when the FDIC adopted its 

2009 regulations that first pegged the 

national rate calculation to a 

methodology based upon deposit rates. 

This is because the 2009 methodology 

was implemented during a recessionary 

period, and more recently, a significant 

number of insured depository 

institutions offer products with less 

standard features that often times are 

either negotiated or not readily provided 

to third party sources. 

As part of this rulemaking process, 

and in response to commenter concerns 

about the data limitations, the FDIC 

reviewed additional data sources to 

determine whether these data sets could 

provide a more reliable reflection of the 

deposit rate market. While some data is 

available for a certain number of less 

traditional deposit products, it is 

difficult to accurately calculate an 

annual percentage yield (APY) for 

certain products without more granular 

data. For example, deposit products that 

pay rates based upon certain balance 

thresholds, or the number of 

transactions made within a specific time 

period, would require the calculation of 


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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 6769 

89As shown in the appendices, for the period of 

low interest rates during 2010 to 2015, and from 

March 2020 to the present, the 75 basis points 

added to the national rate did not restrict less than 

well capitalized institutions from competing for 

market-rate deposits when U.S. Treasury yields 

were near zero. 

90As shown in the appendices, for the periods of 

1992 and 2008 and 2015 to early 2020, during 

periods of more normal interest rate environments, 

the national rate cap based on Treasuries is more 

reactive to increases in deposit rates than the first 

prong. 91 84 FR 46470, 46480 and 46492. 

APYs based upon granular data (at the 

individual depositor level) that is 

unavailable, or to make general 

assumptions that would likely result in 

less reliable APY calculations. 

Nonetheless, based on historical data 

samples the FDIC evaluated, it appears 

that including the non-traditional 

deposit products that have a calculable 

APY in the proposed 95th percentile 

methodology would generally result in 

a relatively small increase in applicable 

rate caps. However, these data samples 

and analysis had limitations, and the 

observations may not be robust across 

all banks and all markets; as a result, the 

FDIC plans to further explore these 

issues in the future rather than adopt 

this methodology as proposed. 

As noted above, the final rule retains 

the first proposed prong for the national 

rate cap (national rate +75 basis points). 

The FDIC is retaining this prong, as 

proposed, notwithstanding the data 

limitations described above, because (1) 

based upon review of the historical 

information, the first prong will be 

substantially similar to the branch-based 

methodology that the FDIC has used for 

over a decade, (2) the 75 basis point 

buffer ameliorates, though does not 

eliminate, some of the potential data 

concerns,89 and (3) including a second 

prong not based on deposit data ensures 

the FDIC is not fully relying on deposit 

data in calculating the national rate 

cap.90 The FDIC will continue to 

explore ways and additional data 

sources to improve the national rate 

calculation and will continue to 

consider pegging the national rate cap 

entirely to deposit rates in the future. 

Nevertheless, the FDIC acknowledges 

that replacing the proposed 95th 

percentile prong with a cap based on 

Treasury rates or federal funds rates 

addresses concerns raised by 

commenters about the transparency of 

the underlying data that the FDIC uses 

to calculate the national rate, as well as 

the perceived difficulty in replicating 

the methodology. Further, a national 

rate cap applicable during normal 

market conditions based on the 95th 

percentile of rates is vulnerable to an 

institution, or a few institutions, with a 

large deposit share affecting the 95th 

percentile by withdrawing or 

introducing a product into the market or 

initiating a significant rate change. 

While such fluctuations, caused by 

factors other than data limitations, 

would be reflective of changes in the 

market, these changes could cause 

volatility in the national rate cap. 

As another reason for using a 

Treasuries-based rate as one of the rate 

cap prongs, the FDIC notes that it had 

previously determined that the 

Treasuries-based rates plus 75 basis 

points represented a reasonable 

threshold above which rates 

‘‘significantly exceeded’’ or were 

‘‘significantly higher’’ than the national 

rate. This determination was relatively 

effective for the 16 years between 1992 

and 2008 and was only changed in 2009 

to the current national rate cap formula 

because, in part, Treasury-based rates 

fell significantly below deposit rate 

averages in the low interest rate 

environment associated with the 

financial crisis at that time. It is 

apparent that neither the current 

methodology nor the Treasuries-based 

rate works in all interest rate 

environments, the methodology adopted 

by the final rule is expected to be 

durable under both high-rate or risingrate environments and low-rate or 

falling-rate environments. 

Additionally, the FDIC will change 

from publishing the national rates and 

national rate caps weekly, to publishing 

such data monthly to limit the need for 

institutions to continually check the 

national rates. However, the FDIC may 

in certain circumstances publish the 

national rates and national rate caps 

more or less frequently, such as during 

a time of unusual rate volatility. 

With respect to nonmaturity deposits, 

there is no Treasury security of 

comparable duration. In the Interest 

Rate NPR, the FDIC asked if the 

overnight federal funds rate should be 

used for nonmaturity deposits instead of 

U.S. Treasury securities products. 

Several commenters recommended that 

the FDIC use the federal funds rate.91

In the final rule, for nonmaturity 

products, in lieu of the Treasury-based 

calculation, the second prong of the 

national rate cap is the federal funds 

rate plus 75 basis points. The FDIC 

notes that, historically, the rate for the 

three-month Treasury security has 

tracked closely the federal funds rate. 

The FDIC has selected the federal funds 

rate as the reference point for 

nonmaturity deposits under the second 

prong because, as an overnight deposit, 

Federal funds are conceptually closer to 

nonmaturity deposits. 

The charts attached in Appendix 2 of 

this notice reflect historical data for the 

interest rates of insured depository 

institutions that would have resulted 

from the two prongs of the national rate 

cap being adopted. The charts also show 

the average of top rates offered for 

interest checking, savings, and money 

market demand accounts, as well as CDs 

for terms of 1-month, 3-months, 6- 

months, one-year, two-years, threeyears, and five-years. 

3. Local Market Rate Cap in the Final 

Rule 

In the final rule, the FDIC is adopting 

the proposed local market rate cap of 90 

percent of the highest offered rate in the 

institution’s local market geographic 

area. Specifically, a less than well 

capitalized institution may provide 

evidence that any bank or credit union 

with a physical presence in its local 

market area offers a rate on a particular 

deposit product in excess of the national 

rate cap. The local market area may 

include the State, county or 

metropolitan statistical area, in which 

the insured depository institution 

accepts or solicits deposits. The less 

than well capitalized institution will be 

allowed to offer 90 percent of the 

competing institution’s rate on the 

particular deposit product to customers 

located within the less than well 

capitalized institution’s local market 

area. 

The final rule also eliminates the 

current two-step process where less 

than well capitalized institutions 

request a high rate determination from 

the FDIC and, if approved, calculate the 

prevailing rate within local markets. 

Instead, a less than well capitalized 

institution must notify its appropriate 

FDIC regional office that it intends to 

offer a rate that is above the national 

rate cap and provide evidence that an 

insured depository institution or credit 

union with a physical presence in the 

less than well capitalized institution’s 

normal market area is offering a rate on 

a particular deposit product in its local 

market area in excess of the national 

rate cap. The less than well capitalized 

institution would then be allowed to 

offer 90 percent of the rate offered by 

the competing institution in the 

institution’s local market area to 

customers physically located within the 

institution’s local market area. The 

institution would be expected to 

calculate the local rate cap monthly, 

maintain records of the rate calculations 

for at least the two most recent 

examination cycles and, upon the 

FDIC’s request, provide the 

documentation to the appropriate FDIC 


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6770 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 

92 84 FR 46470, 46481 (Sept. 4, 2019). 

93Section 29 of the FDI Act restricts less than 

well capitalized institutions from offering a rate of 

interest that is significantly higher than the 

prevailing rates of interest on deposits offered by 

other insured depository institutions. 12 U.S.C. 

1831f(g)(3). 

94FDIC—12 CFR 324.403(b)(1)(v); Board of 

Governors of the Federal Reserve System—12 CFR 

regional office and to examination staff 

during any subsequent examinations. 

The FDIC is declining to adopt 

recommendations by commenters that 

the local rate cap be higher than 90 

percent of the highest local rate. Given 

the changes being made to the national 

rate cap described above, the FDIC 

expects the need for banks to resort to 

the local rate cap to be less frequent, 

and, in such cases, 90 percent of the 

highest local rate will provide a 

meaningful cap while allowing the 

institution to compete for funds in its 

local market. The FDIC is also not 

revising the proposed rule to include 

internet rates, because the FDIC believes 

that it would be inconsistent with the 

concept of a ‘‘local’’ rate to include 

institutions that do not have a physical 

location in the local market and internet 

rates, which are offered nationally, are 

reflected in the national rate. 

4. Off-Tenor Maturity Products 

If an institution seeks to offer a 

product with an off-tenor maturity for 

which the FDIC does not publish the 

national rate cap or that is not offered 

by another institution within its local 

market area, then the institution will be 

required to use the rate offered on the 

next lower on-tenor maturity for that 

product when determining its 

applicable national or local rate cap, 

respectively. For example, an institution 

seeking to offer a 26-month certificate of 

deposit, and no other local institution is 

offering a 26-month certificate of 

deposit, must use the rate offered for a 

24-month certificate of deposit to 

determine the institution’s applicable 

national or local rate cap. 

On-tenor maturities are defined to 

include the following term periods: 1- 

month, 3-months, 6-months, 12-months, 

24-months, 36-months, 48-months, and 

60-months. All other term periods are 

considered off-tenor maturities. There is 

no off-tenor maturity for nonmaturity 

products such as interest checking 

accounts, savings accounts, or money 

market deposit account. 

H. Alternatives 

Below are alternatives, other than 

those described above, that were 

considered as part of this final 

rulemaking. 

Average of the Top-Payers 

Some commenters suggested that the 

FDIC use an average of the top rates 

paid as the national rate cap. As an 

example, the FDIC could set the 

national rate cap based upon the average 

of the top-25 rates offered (by product 

type). Under this approach, the FDIC 

would interpret that a less than well 

capitalized institution ‘‘significantly 

exceeds the prevailing rate in its normal 

market area’’ if it offers a rate that is 

above the average of the top rates 

offered in the country. This approach 

would be simple to administer and the 

FDIC would be able to provide real-time 

rate caps because it would no longer 

need to maintain and review the 

extensive data it receives from third 

party data providers to calculate 

averages. 

The FDIC decided not to choose this 

approach due to the same data 

limitations as the proposed 95th 

percentile prong, as described in Part II. 

Additionally, the subset of banks paying 

the highest rate may have a small 

market share and have little to no 

influence over competitive rates paid in 

the market. Further, this same small 

subset of banks could be significant 

outliers from the rates offered by the 

market. 

Incorporate Specials and Promotions 

Into the Current National Rate 

Calculation 

Several commenters suggested that 

the FDIC change its methodology in 

calculating the current national rate and 

include additional inputs for the 

published rates, such as special 

negotiated rates or other monetary 

bonus offers. As discussed in Part II, the 

FDIC has not been able to find sufficient 

reliable, robust data to include in its 

national rate calculation the interest 

rates on deposit products with special 

features, such as rewards checking, offtenor maturities, negotiated rates, cash 

bonuses, and non-cash rewards. 

However, as noted, the FDIC will 

continue to explore ways and additional 

data sources to improve the national 

rate calculation in the future. 

One Vote per Institution 

Commenters also recommended that 

published rates be limited to the highest 

rate offered by each depository 

institution rather than incorporating 

rates paid at all branches. According to 

commenters, this would prevent a 

skewing effect on the national rate by 

the largest institutions with the most 

branches. In considering this 

alternative, the FDIC analyzed the 

impact of this change by comparing the 

yield curves for the 12-month CD, the 

current national rate cap (using all 

branches) and the national rate cap 

using the highest rate offered by each 

IDI (in other words, each institutions 

receives ‘‘one vote’’).92 The differences 

in rates range from 15 to 52 basis points, 

with a range of 25 basis points between 

2012 through 2017. 

The FDIC did not choose this 

alternative because, in the FDIC’s view, 

the one-bank, one vote approach would 

result in a national rate that would not 

be as reflective of market rates currently 

being offered as weighting by market 

share. The FDIC believes that 

institutions with more deposits have a 

greater impact on competition and the 

market rates. 

Federal Home Loan Bank Borrowing 

Rate 

Many commenters suggested that the 

FDIC amend the current national rate 

calculation and use the Federal Home 

Loan Bank (FLHB) borrowing rate for 

each maturity. The FDIC chose not to 

propose the FHLB borrowing rate for 

several reasons. The FHLB borrowing 

rate is not based upon rates offered by 

institutions,93 but is instead based upon 

the cost of funds for FHLB member 

institutions and requires that FHLBs 

obtain and maintain collateral from 

their members to secure the advance. 

Collateral requirements and borrowing 

interest rates may also vary based on an 

insured depository institution’s 

financial condition. Moreover, FHLB 

advances, unlike deposit products, are 

not insured and not guaranteed by the 

U.S. government. In addition, there are 

11 different FHLB districts, all that 

establish their own rates that may vary 

between districts. For these reasons, the 

FDIC does not believe that the FHLB 

borrowing rate would be a reliable 

indicator of rates offered on deposits by 

insured depository institutions. 

I. Expected Effects 

The interest rate restrictions apply to 

an insured depository institution that is 

less than well capitalized under PCA’s 

capital regime. An institution may be 

less than well capitalized either 

because: (1) Its capital ratios fall below 

those set by the federal banking agencies 

for an institution to be deemed well 

capitalized; or (2) it otherwise meets the 

capital requirements for the well 

capitalized category, but is subject to a 

written agreement, order, capital 

directive, or prompt corrective action 

directive issued by its primary regulator 

that requires the institution to meet and 

maintain a specific capital level for any 

capital measure.94


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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 6771 

208.43(b)(1)(v); Office of the Comptroller of the 

Currency—12 CFR 6.4(c)(1)(v). 

95The 10 institutions do not include any 

quantitatively well capitalized institutions that may 

have been administratively classified as less than 

well capitalized. 

96Some institutions offered fewer than 11 

products. 

97 12 U.S.C. 1831f(a). 

98 12 U.S.C. 1831f(c). 

99 12 U.S.C. 1831f(g)(3) and (h). The restriction in 

section 1831f(g)(3) operates to deem any less than 

well capitalized institution a deposit broker and 

such deposits brokered deposits, if the institution 

solicits deposits by offering a rate of interest 

significantly higher than the prevailing rate. As a 

deposit broker, such an institution may only accept 

such deposits if it is adequately capitalized and has 

received a waiver under section 1831f(c). If below 

adequately capitalized, pursuant to section 

1831f(g)(3), the institution would be prohibited 

from accepting such funds because a deposit broker 

may not accept brokered deposits and cannot not 

obtain a waiver to do so. Section 1831(h) results in 

the same prohibition for undercapitalized 

institutions. 

100 12 U.S.C. 1831f(b). 

As noted above, as of June 30, 2020, 

10 FDIC-insured institutions had capital 

ratios that put them in a PCA category 

lower than well capitalized.95 The FDIC 

reviewed the deposit interest rates 

offered for 11 products during the 

month of September 2020 by nine of 

these institutions for which data were 

available. None of the nine less than 

well capitalized institutions offered 

interest rates above the current or the 

final rule’s national rate caps for any 

product reviewed.96

The definition of local and national 

rate cap established by the final rule is 

likely to benefit FDIC-insured 

institutions. The FDIC believes that the 

definition of national rate cap adopted 

by the final rule is more sensitive to a 

range of interest rate environments. The 

final rule establishes a more transparent 

methodology for calculating the national 

rate cap which should benefit FDICinsured institutions by facilitating ease 

of compliance and simplifying their 

liquidity planning. 

The greater sensitivity of the national 

rate cap in this final rule to prevailing 

interest rates would likely reduce the 

potential for severe liquidity problems 

or liquidity failures at viable banks to 

arise solely as a result of the operation 

of the cap. The FDIC believes this aspect 

of the rule is important, although 

difficult to quantify given uncertainties 

about both the future interest rate 

environment and the future condition of 

banks. On the other hand, to the extent 

rate caps are less restrictive, the leeway 

for some less than well capitalized 

institution to continue to fund 

imprudent operations could increase. In 

this regard, the FDIC believes the final 

rule continues to comport with the 

statutory purpose of preventing less 

than well capitalized institutions from 

soliciting deposits at interest rates that 

significantly exceed prevailing deposit 

interest rates. 

The final rule could benefit depositors 

by enabling them to earn higher rates of 

return on their deposits. It is difficult to 

estimate this expected effect because the 

effect would depend on the future 

economic and financial conditions, and 

the rates of return of competing 

products, among other things. 

Finally, the final rule could pose 

some modest regulatory costs for FDICinsured institutions associated with 

making the necessary changes to 

policies, procedures and internal 

systems in order to achieve compliance 

with the final rule. 

III. Treatment of Nonmaturity Deposits 

for Purposes of the Brokered Deposits 

and Interest Rate Restrictions 

A. Background 

Section 29 provides that an ‘‘insured 

depository institution that is not well 

capitalized may not accept funds 

obtained, directly or indirectly, by or 

through any deposit broker for deposit 

into 1 or more deposit accounts’’ 

(emphasis added).97

Section 29 also contains two interest 

rate restrictions, one based on when 

funds are accepted by an institution, the 

other on when an institution solicits 

deposits. One restriction provides that 

an adequately capitalized institution 

accepting brokered deposits pursuant to 

a waiver granted under Section 29(c) of 

the FDI Act or reciprocal deposits may 

not pay a rate of interest that, at the time 

the funds are accepted, significantly 

exceeds the prevailing rate.98 The other 

interest rate restriction prohibits a less 

than well capitalized institution from 

soliciting any deposits by offering a rate 

of interest that is significantly higher 

than the prevailing rate.99

For CDs and other maturity deposits, 

the timing of when funds for such 

deposits are accepted is straightforward, 

and Section 29 directs that such funds 

are accepted when the maturity deposit 

is renewed or rolled over.100 For 

deposits credited to a nonmaturity 

account, however, Section 29 does not 

provide express direction or guidance 

on when such a deposit is accepted or 

solicited. Applying these concepts of 

solicitation and acceptance to 

nonmaturity deposits is more relevant 

today than at the time that the law was 

enacted, in 1989. At that time, brokered 

deposits were almost exclusively 

maturity deposits. However, since 1989, 

nonmaturity brokered deposits have 

become more commonplace. 

In recent years, there has been some 

confusion regarding the FDIC’s 

application of section 29 to nonmaturity 

deposits. The FDIC is adopting an 

interpretation in a clear, transparent 

way, through notice and comment 

rulemaking, to address such confusion. 

B. Proposed Rulemakings 

Accordingly, through this rulemaking 

process, the FDIC considered 

approaches for when nonmaturity 

deposits held by less than well 

capitalized institutions are subject to the 

interest rate and brokered deposits 

restrictions. 

In the Interest Rate NPR, the FDIC 

indicated that it was considering an 

interpretation under which nonmaturity 

deposits would be viewed as ‘‘accepted’’ 

and ‘‘solicited’’ for purposes of the 

interest rate restrictions at the time any 

new nonmaturity funds are placed at an 

institution. 

Under the proposed interpretation, 

balances in an existing money market 

demand account or other savings 

account, as well as transaction accounts, 

at the time an institution fell below well 

capitalized would not be subject to the 

interest rate restrictions unless or until 

new funds were deposited into those 

accounts. If funds were deposited to 

such an account after the institution 

became less than well capitalized, the 

entire balance of the account would be 

subject to the interest rate restrictions. 

Interest rate restrictions would apply to 

any new nonmaturity deposit accounts 

opened after the institution fell below 

well capitalized. 

In the Brokered Deposits NPR, the 

FDIC considered a similar approach for 

brokered deposits as it did for interest 

rate restrictions. For brokered 

nonmaturity deposits, the FDIC 

considered an interpretation under 

which nonmaturity brokered deposits 

are viewed as ‘‘accepted’’ for the 

brokered deposits restrictions at the 

time any new nonmaturity funds are 

placed at an institution by or through a 

deposit broker. 

Under this proposed interpretation, 

brokered balances in a money market 

demand account or other savings 

account, as well as transaction accounts, 

at the time an institution falls below 

well capitalized, would not be subject to 

the brokered deposits restrictions. 

However, if brokered funds were 

deposited into such an account after the 

institution became less than well 

capitalized, the entire balance of the 

account would be subject to the 

brokered deposits restrictions. If, 

however, the same customer deposited 

brokered funds into a new account and 

the balance in that account was subject 


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to the brokered deposits restrictions, the 

balance in the initial account would 

continue to not be subject to the 

brokered deposits restrictions so long as 

no additional funds were accepted. The 

restrictions would also generally apply 

to any new nonmaturity brokered 

deposit accounts opened after the 

institution falls to below well 

capitalized. 

C. Comments 

The FDIC did not receive comments 

in response to the proposed 

interpretation provided in the Brokered 

Deposits NPR. However, the FDIC 

received a number of comments in 

response to proposed interpretation 

provided in the Interest Rate NPR, 

which are summarized below. 

Interest Rate NPR. A national 

association that represents banks urged 

the FDIC not to finalize its proposed 

interpretation regarding nonmaturity 

deposits. The association wrote that 

such an interpretation would be 

operationally unworkable and would 

require banks to maintain parallel 

products and systems to be able to track 

accounts and multiple rates in the event 

the bank becomes less than well 

capitalized. The association also noted 

that forcing a customer’s rate down, 

should he or she deposit an additional 

amount in the account would hurt 

consumers and likely cause a liquidity 

stress as customers move their balances 

elsewhere. Instead, the association 

recommended that once an institution 

falls below well capitalized, the FDIC 

should exempt or grandfather all 

existing deposit accounts from the rate 

restrictions, restricting only new 

deposits to new accounts opened with 

the bank. Similarly, another commenter 

suggested that existing nonmaturity 

accounts should be exempt from rate 

caps, even when new funds are added. 

A stakeholder in the banking industry 

pointed out that some banks can and do 

pay interest at different rates on 

different parts of a depositor’s balance, 

so called ‘‘tiered interest.’’ The 

commenter indicated that there is no 

apparent reason why a bank could not 

tier interest in a way that would apply 

an unrestricted rate to the part of the 

balance that consists of deposits 

received before the bank became not 

well capitalized and apply a restricted 

rate only to new deposits in the account. 

The commenter indicated that the 

restricted interest rate could be applied 

on a last-in, first-out basis. 

D. Final Rule 

In the final rule, the FDIC is adopting 

a new interpretation for the solicitation 

and acceptance of nonmaturity deposits. 

In adopting the interpretation described 

below, the FDIC is relying on the plain 

meaning of the terms ‘‘solicit’’ and 

‘‘accept’’ in a way that it is intended to 

be operationally workable for 

institutions and the FDIC. The FDIC 

appreciates the operational difficulties 

described by commenters that 

institutions may have faced under the 

proposed interpretation, and has tried to 

address such difficulties in the final rule 

while remaining within the parameters 

of the statutory text. 

1. Solicitation of Funds by Offering 

Rates of Interest 

Section 29 prohibits a less than well 

capitalized institution from soliciting 

deposits by offering a rate of interest 

that is significantly higher than the 

prevailing rate. Generally, under the 

interpretation adopted by this final rule, 

an institution has solicited a deposit 

when a new account is opened or when 

the institution increases the rate of 

interest on an existing account. If a 

depositor adds funds to, or withdraws 

funds from, an existing nonmaturity 

account, or leaves funds in an existing 

nonmaturity account, no solicitation by 

the institution has occurred. 

More specifically, for a nonmaturity 

account opened after the institution has 

fallen below well capitalized, under the 

final rule, an institution has solicited 

the deposit when the account is opened. 

For a nonmaturity account opened prior 

to an institution’s PCA status falling 

below well capitalized, funds already 

credited to the account at that time have 

not been solicited by the institution. In 

addition, an institution will not be 

considered to have solicited deposits 

when new funds are added to a 

nonmaturity account that was opened 

before the institution fell below well 

capitalized, unless it has changed the 

interest rate on the account. 

For a nonmaturity account held by a 

party as agent or nominee of one or 

more persons, funds are solicited each 

time the funds of a new beneficial 

owner are added to, for example, the 

omnibus account. As a result, a less 

than well capitalized institution is 

restricted from soliciting funds of a new 

beneficial owner at a rate that exceeds 

its applicable rate caps. 

2. Acceptance of Brokered Deposits 

Section 29 prohibits a less than well 

capitalized institution from accepting 

funds obtained, directly or indirectly, by 

or through any deposit broker for 

deposit into one or more deposit 

accounts. 

As noted above, for deposits that have 

a maturity, application of section 29 is 

straightforward. Funds have been 

accepted whenever a new account is 

opened, or when funds are renewed or 

rolled over. 

The treatment of nonmaturity 

deposits is less straightforward. Under 

this final rule, the FDIC is adopting an 

interpretation for when a nonmaturity 

brokered deposit is considered accepted 

and therefore subject to the brokered 

deposits restrictions. Generally, the 

FDIC finds that funds are accepted 

whenever (1) a depositor adds funds to 

a newly opened nonmaturity account 

(or, similarly, when funds for a new 

underlying depositor are credited to an 

omnibus account in the case of an agent 

or nominee) or (2) for existing 

nonmaturity accounts, when the 

aggregate amount of nonmaturity funds 

accepted by or through a particular 

deposit broker increases. More 

specifically, the FDIC is interpreting 

that for nonmaturity brokered deposits 

opened prior to an institution’s PCA 

status falling below well capitalized, 

funds that were already credited to the 

nonmaturity accounts at that time, by a 

particular deposit broker, would not be 

treated as being accepted. Nonmaturity 

brokered deposits would be considered 

accepted in instances when, after an 

institution becomes less than well 

capitalized: 

Æ a nonmaturity brokered account is 

opened; 

Æ the amount of nonmaturity 

brokered deposits, by or through a 

particular deposit broker, increases 

above the balance of nonmaturity 

brokered deposits existing at the bank, 

with respect to that particular deposit 

broker, at the time of downgrade to less 

than well capitalized; or 

Æ for agent or nominee accounts, new 

funds of a new beneficial owner are 

added to the account. 

Under this interpretation, if an 

adequately capitalized bank, for 

example, retained $10 million in 

nonmaturity brokered deposits from a 

particular deposit broker prior to the 

PCA downgrade, then it can continue to 

receive funds in and out of the 

nonmaturity brokered accounts 

maintained by that deposit broker, 

without seeking a waiver, as long as: 

The total amount of nonmaturity 

brokered deposits from that deposit 

broker does not increase above $10 

million, a new nonmaturity account is 

not opened, or (for agent or nominee 

accounts) new funds of a new beneficial 

owner are not added to the account. In 

order for the aggregate amount of 

nonmaturity funds from that particular 

deposit broker to increase above $10 

million, or in order for a new depositor 

to place funds into a nonmaturity 


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account, the institution would need a 

waiver from the FDIC. 

3. Acceptance of Brokered Deposits 

Subject to a Waiver Into a Nonmaturity 

Account 

As noted above, for the purposes of 

Section 29’s interest rate restrictions, in 

addition to the restrictions on soliciting 

deposits by offering a rate of interest 

that is significantly higher than the 

prevailing rate, an adequately 

capitalized institution is also subject to 

interest rate restrictions when it accepts 

nonmaturity brokered deposits subject 

to a waiver. 

As a result, nonmaturity brokered 

deposits that are accepted pursuant to a 

waiver, as described above, would be 

subject to the applicable rate cap. To 

take the example above, the institution, 

upon falling below well capitalized 

status, would not be restricted by 

section 29 from paying any rate of 

interest on nonmaturity funds from that 

particular deposit broker to existing 

depositors, so long as the aggregate 

funds remained below $10 million. The 

institution could receive a waiver to 

allow the aggregate funds from that 

deposit broker for that group of existing 

depositors to exceed $10 million; 

however, the institution would not be 

permitted to pay a rate of interest in 

excess of the rate cap on more than $10 

million in funds. In the event the 

institution receives such a waiver, the 

rule does not distinguish which funds 

have been accepted pursuant to the 

waiver, due to the fungibility of funds 

and the operational challenges in 

imposing such a regime, and instead 

restricts the total amount of funds upon 

which the institution can pay a rate in 

excess of the applicable rate cap. The 

rate cap restrictions would also apply to 

any new accounts opened by or through 

the deposit broker after the institution 

fell below well capitalized. 

More specifically, for a nonmaturity 

account opened prior to an institution’s 

PCA status falling below well 

capitalized, with respect to a particular 

deposit broker, brokered funds that were 

already credited to the nonmaturity 

account at that time would not be 

treated as being accepted for purposes of 

the interest rate restrictions. Funds 

added to the account after the 

institution falls below well capitalized, 

with respect to a particular deposit 

broker, would be subject to the interest 

rate restriction to the extent they 

exceeded the balance of nonmaturity 

brokered deposits existing at the bank, 

with respect to that particular deposit 

broker, at the time of downgrade to less 

than well capitalized, if the institution 

has received a waiver to accept brokered 

deposits. In addition, with respect to a 

particular deposit broker, for a 

nonmaturity account opened after an 

institution has fallen below well 

capitalized, the brokered funds will be 

treated as accepted when the 

nonmaturity account is opened. For a 

nonmaturity account held by a party as 

agent or nominee of one or more 

persons, with respect to a particular 

deposit broker, funds are accepted each 

time funds of a new depositor are added 

to the omnibus account. 

4. Summary of Treatment of 

Nonmaturity Deposits 

To summarize, if a bank falls below 

well capitalized, under this final rule: 

• The bank may not open a new 

nonmaturity account that pays an 

interest rate above the applicable rate 

cap, nor may it add funds on behalf of 

a new depositor to an existing 

nonmaturity account that pays an 

interest rate above the applicable rate 

cap; 

• the bank may continue to pay an 

interest rate above the applicable rate 

cap on a nonmaturity account opened 

prior to the bank falling below well 

capitalized, but may not increase the 

rate, and a depositor may add funds to 

and withdraw funds from such account; 

• without a waiver, a bank may not 

open a new nonmaturity account by or 

through a deposit broker, nor may funds 

on behalf of a new underlying depositor 

be added to an existing omnibus 

account in the case of an account of an 

agent or nominee that is a deposit 

broker; 

• without a waiver, the aggregate 

amount of nonmaturity funds that the 

bank receives by or through a deposit 

broker may not exceed the aggregate 

amount of nonmaturity funds retained 

from that deposit broker at the time the 

bank fell below well capitalized, 

(meaning that existing depositors may 

add funds to or withdraw funds from 

their nonmaturity accounts so long as 

the aggregate amount does not exceed 

the aggregate amount at the time the 

bank fell below well capitalized); 

• with a waiver, the aggregate 

nonmaturity funds received by or 

through a deposit broker may increase 

above the aggregate amount at the time 

the bank fell below well capitalized, 

subject to the terms of the waiver; and 

• with or without a waiver, the 

amount of nonmaturity funds from a 

particular deposit broker on which the 

bank may pay a rate of interest in excess 

of the applicable rate cap may not 

exceed the aggregate amount of 

nonmaturity funds retained from that 

deposit broker at the time the bank fell 

below well capitalized. 

Appendix 1 

PUBLICLY-AVAILABLE ADVISORY OPINIONS

AO No. AO title 

02–2 .................. 02–2 Applicability of FDIC Regulations Regarding Brokered Deposits to Credit Unions Servicers That Purchase Certificates 

of Deposit from FDIC Insured Banks. 

02–4 .................. 02–4 Opinion Regarding Whether ‘‘Listing Services’’ Would Be Considered Deposit Brokers. 

04–03 ................ 04–03 Questions Concerning Capital Market CD Program. 

04–04 ................ 04–04 Question Regarding FDIC’s Criteria for Determining When a ‘‘Listing Service’’ is a Deposit Broker. 

04–05 ................ 04–05 Questions Regarding Deposit Insurance Coverage of the interest and CD When Interest is Based on the Consumer 

Price Index. 

05–02 ................ 05–02 Are Funds Held in ‘‘Cash Management Accounts’’ Viewed as Brokered Deposits by the FDIC? 

00–6 .................. 00–6 Whether Brokered CDs Purchased at Different Institutions Will be Separately Insured After a Merger of Those Institutions. 

13–01 ................ 13–01 Question Concerning a Deposit Program. 

15–01 ................ 15–01 Question regarding whether Financial Firms that Refer Clients to a Bank Qualify as Deposit Brokers. 

15–02 ................ 15–02 Question regarding whether a Company that Designs Deposit Products is Considered a Deposit Broker–Part I. 

15–03 ................ 15–03 Question regarding whether a Company that Designs Deposit Products is Considered a Deposit Broker–Part II. 

15–04 ................ 15–04 Question regarding whether business professionals qualify as deposit brokers when referring clients to a bank. 

16–01 ................ 16–01 Question regarding whether certain Deposits held for Clearing Purposes at an Affiliated Bank are Brokered Deposits. 

17–01 ................ 17–01 Question regarding whether deposits placed through a Bank Program to allocate Charitable Donations to local Community Organizations would be Considered Brokered Deposits. 


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PUBLICLY-AVAILABLE ADVISORY OPINIONS—Continued 

AO No. AO title 

17–02 ................ 17–02 Question regarding whether certain Deposits placed through a Bank’s relationship with certain ‘‘Middle Market Companies’’ are considered Brokered Deposits. 

88–7 .................. 88–7 Insurance Coverage of CDs Invested Through Deposit Broker. 

89–51 ................ 89–51 Brokered Deposits Prohibition of Section 29 of the FDI Act Under FIRREA. 

89–55 ................ 89–55 Does Acceptance of Brokered Deposits in Violation of Section 29 of the FDI Act Affect the Insurance of the Deposits 

So Received. 

90–11 ................ Brokered Deposits: Master CD’s Purchased From Financial Institutions and Held by a Custodian Bank for the Benefit of the 

Purchasers. 

90–2 .................. Deposit Insurance for Brokered Deposits. 

90–24 ................ 90–24 Deposit Broker Engaged in the Business of Placing Deposits, or Facilitating the Placement of Deposits. 

90–40 ................ Domestic Brokered Deposits of Foreign Bank Customer Funds: Recordkeeping Requirements. 

92–50 ................ 92–50 Criteria for Determining Whether a Listing Is a ‘‘Deposit Broker’’ for Purposes of 12 U.S.C. § 1831f and 12 C.F.R. 

§ 337.6. 

92–51 ................ Extent to Which Trust Department of Bank Is Subject to Registration Requirements Imposed by New Brokered Deposit Prohibitions. 

92–52 ................ Company and Its Employees Offering Investment Advisory Services and Purchasing CDs in Clients’ Names Are Deposit Brokers Subject to Registration Requirements of New Brokered Deposit Prohibitions. 

92–53 ................ 92–53 Company Which Never Has Actual Possession of Investor’s Principal But Facilitates Placement of Deposits Is a Deposit Broker. 

92–54 ................ 92–54 Company Which Merely Collects Information on Availability and Terms of Deposit Accounts and Publishes Such Data 

Is not a Deposit Broker. 

92–56 ................ 92–56 Bank Employee Who Sells Commercial Checking Accounts and Is Paid Solely by Commission Must Register as a 

Deposit Broker. 

92–60 ................ 92–60 Where Company and Its Clients Are Deposit Brokers, Company May File Master Notice Registering as Deposit 

Broker on Behalf of Clients. 

92–66 ................ 92–66 Investment Advisor/Fund Administrator for Governmental Authorities Is Deposit Broker with Respect to Optional Certificate of Deposit Placement Program It Offers. 

92–68 ................ 92–68 Bank Acts as Deposit Broker When It Places Portion of Deposits Exceeding Insurance Limit with Affiliated Depository 

Institutions. 

92–69 ................ 92–69 Renewal or Rollover of Deposit Is Prohibited by 12 U.S.C. § 1831f(a) only if Deposit Broker Continues to be Involved 

in Transaction; Brokered Deposits Accepted at Rates Significantly Higher than Prevailing Rate but Renewed for Less Does 

not Constitute Prohibited Renewal. 

92–71 ................ 92–71 Bank Acts as Deposit Broker When, at Request of Customer, It Purchases CDs at Other Depository Institutions and 

Charges Fee for Such Service. 

92–73 ................ 92–73 Mere Knowledge on Part of Insured Depository Institution That It Is Accepting Funds from Broker Is Sufficient to Subject Institution to Brokered Deposit Restrictions Based on Its Capital Category. 

92–75 ................ 92–75 Brokered Deposits: Employee Compensation May Not Be Adjusted After the Fact to Ensure That Compensation is 

Primarily Salary. 

92–77 ................ 92–77 Investment Advisor/Broker-Dealer which Establishes System for Marketing Deposits and Receives Consideration 

Through Receipt of Deposits or Fees by Bank which it Partially Owns Must Register as Deposit Broker. 

92–78 ................ 92–78 FHA Trustees Servicing FHA-Related Mortgage Portfolios Are Not Subject to Brokered Deposit Registration Requirements. 

92–79 ................ 92–79 Associations With Which Insured Institution Has Entered Into Marketing Agreements are Subject to Brokered Deposit 

Registration Requirements. 

92–84 ................ 92–84 Company that Assist and Advises Mortgage Loan Servicer in Placing Funds Must Register as Deposit Broker. 

92–86 ................ 92–86 Company That Assists Municipalities, Private Investors and Corporations in Locating Depository Institutions Actively 

Seeking Large Deposits but That Does not Accept Direct Fee from Institution Must Register as a Deposit Broker. 

92–87 ................ 92–87 Agreement Entered into Between Trust Department and Customer for Primary Purpose of Placing Funds With Insured Depository Institutions Requires Bank to Register as Deposit Broker. 

92–88 ................ 92–88 Bankers’ Bank Acts as Deposit Broker When It Places Deposits for Its Stockholder Banks and Other Depository Institutions. 

92–91 ................ 92–91 Administrator of State School Cash Management Program Which Places CDs Must Register as Deposit Broker. 

92–92 ................ 92–92 Bank Acts as Deposit Broker When It Places Excess Funds for Municipality Acting as Public Guardian/Administrator 

and for Other Customers. 

93–3 .................. 93–3 Transaction in Which an Entity Finds Insured Depository Institutions for Trust Department Investments for a Fee or 

Commission Is Subject to Brokered Deposit Recordkeeping Requirements. 

93–4 .................. 93–4 Deposits Used to Secure Loans to Foreign Customers Are Subject to Brokered Deposit Interest Rate Restrictions. 

93–5 .................. 93–5 An Adequately Capitalized Depository Institution Without a Brokered Deposit Waiver May Not Offer Interest Rates Significantly Higher Than Prevailing Interest Rate Offered by Other Insured Depository Institutions With Same Type of Charter. 

93–6 .................. 93–6 Brokered Deposits: Insured Depository Institutions Must Compare Their Interest Rates to Other Insured Depository Institutions With Same Type of Charter. 

93–13 ................ 93–13 Funds Invested in Federally Insured Minority- or Women-Owned Depository Institutions by Fannie Mae Pursuant to 

an Irrevocable Trust Are Not Considered Brokered Deposits. 

93–14 ................ 93–14 Bank Acts as Deposit Broker When It Occasionally Invests in CDs With Other Insured Depository Institutions on Behalf of Its Customers. 

93–16 ................ 93–16 Well-Capitalized Institution That Solely Offers High-Rate Deposits Need Not Notify FDIC of Its Deposit Broker Status. 

93–18 ................ 93–18 Clarification of Brokered Deposit Interest Restrictions Imposed by 12 U.S.C. 1831(f). 

93–19 ................ 93–19 Circumstances Under Which an Adequately Capitalized Institution Operating Under Brokered Deposit Waiver May 

Use National Rate Instead of Normal Market Rate. 

93–21 ................ 93–21 Legal Requirements Governing Advertisement of Deposits by Deposit Brokers. 

93–30 ................ 93–30 Affinity Groups Are Not Deposit Brokers for Purposes of Sections 29 and 29A of the FDI Act and 12 CFR § 337.6(a). 


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PUBLICLY-AVAILABLE ADVISORY OPINIONS—Continued 

AO No. AO title 

93–31 ................ 93–31 Whether Well-Capitalized Institution Offering Variable-Rate, College Cost-Linked CD and Agents Who Place CD Are 

Deposit Brokers. 

93–32 ................ 93–32 Clarification of Brokered Deposit Interest Rate Restrictions. 

93–34 ................ 93–34 Whether Corporate Sponsor Participating in Bank Tie-In Promotion Is a Deposit Broker. 

93–40 ................ 93–40 Clarification of Brokered Deposit Interest Rate Restrictions. 

93–44 ................ 93–44 Brokered Deposits: Further Guidance for Listing Services. 

93–46 ................ 93–46 Brokered Deposits: Clarification of ‘‘Deposit Broker’’ Definition and Interest Rate Restrictions. 

93–47 ................ 93–47 Whether Independent Trust Company Which Conducts Activities on Behalf of Affiliated Bank Must Register as Deposit Broker. 

93–50 ................ 93–50 Circumstances Under Which Well-Capitalized Bank Need Not Notify FDIC of Its Employees’ Status as Deposit Brokers. 

93–63 ................ 93–63 Bank Deemed as ‘‘Deposit Broker’’ When Engaging in Deposit Support Services and Customer Service Activities. 

93–68 ................ 93–68 Section 29 of the FDI Act—Effects of an Institution’s Inability to Accept Brokered Deposits on Pass-Through Coverage and the Written Notice Requirement. 

93–71 ................ 93–71 Whether Certain Affinity Groups that Endorse the Marketing of Consumer Credit and Deposit Products of a National 

Bank Are Considered Deposit Brokers. 

94–13 ................ 94–13 Whether Bank Is Considered a Deposit Broker When Offering Secured Credit Card Loans to Its Customers. 

94–15 ................ 94–15 Is Company a Deposit Broker to the Extent It Refers Its Customers to a Particular Bank. 

94–37 ................ 94–37 Deposit Incentive Programs: Would the Bank Be Deemed ‘‘Deposit Broker’’ or Be Confined by Certain Interest Rate 

Limitations Under Section 29 of the FDI Act. 

94–39 ................ 94–39 Brokered Deposits: Are Funds Deposited in a Special Reserve Bank Account for the Exclusive Benefit of Customers 

Brokered Deposits Under Sections 29 and 29A of the FDI Act. 

94–40 ................ 94–40 Deposit Broker: Is an Accounting Service for a Health Care Facility Included Under 12 U.S.C. 1831f. 

94–41 ................ 94–41 Requirements For Qualification For ‘‘Second-Tier’’ Broker Exception Under 12 U.S.C. 1831f—1. 

94–49 ................ 94–49 Deposit Broker Statute: Whether Well Capitalized Insured Depository Institutions May Accept Deposits From a Deposit Broker Without Restriction. 

95–24 ................ 95–24 Interest Rate Restrictions Imposed Through the Brokered Deposit Law. 

95–25 ................ 95–25 Applicability of Brokered Deposit Law to National CD Placement Program. 

95–9 .................. 95–9 Whether an Insurance Agent Is a Deposit Broker If It Is Compensated By a Bank For Referring Deposit Customers to 

the Bank. 

96–4 .................. 96–4 Whether a Foreign Bank Could Be Considered a Deposit Broker, and if They Would Be Required to Notify the FDIC of 

Their Status. 

99–3 .................. 99–3 Advertisement of ‘‘FDIC Insured’’ CDs by Deposit Brokers. 

99–5 .................. 99–5 Deposit Brokers and ‘‘Transferable Custodial Certificates of Deposit.’’ 

Financial Institution Letters 

FIL Number/Title 

FIL–42–2016 Frequently Asked Questions on Identifying, Accepting and Reporting Brokered Deposits. 

FIL–69–2009 Process for Determining in An Institution Subject to Interest-Rate Restrictions is Operating in a High-Rate Area. 

Appendix 2 

Historical charts illustrating the final 

national rate cap, the top rates offered, and 

the previous and current national rate caps, 

where applicable, since 2005. 

BILLING CODE 6714–01–P 


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101 44 U.S.C. 3501–3521. 

102 44 U.S.C. 3507(d). 

103 5 CFR 1320. 104 85 FR 7453 (Feb. 10, 2020). 

IV. Administrative Law Matters 

BILLING CODE 6714–01–C 

A. Paperwork Reduction Act 

1. Brokered Deposits (RIN 3064–AE84) 

Certain provisions of the final rule 

contain ‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act (PRA) of 

1995.101 In accordance with the 

requirements of the PRA, the FDIC may 

not conduct or sponsor, and a 

respondent is not required to respond 

to, an information collection unless it 

displays a currently valid Office of 

Management and Budget (OMB) control 

number. The information collection 

requirements contained in this final rule 

are being submitted to the Office of 

Management and Budget (OMB) for 

review and approval under section 

3507(d) of the PRA 102 and section 

1320.11 of the OMB’s implementing 

regulations.103 FDIC is revising its 

existing information collection entitled 

‘‘Application for Waiver of Prohibition 

on Acceptance of Brokered Deposits’’ 

(OMB Control Number 3064–0099) and 

will rename the information collection 

‘‘Reporting Requirements for Brokered 

Deposits.’’ 

Current Actions 

Under the final rule: 

• Respondents may file an 

application with the FDIC for a waiver 

of the prohibition on the acceptance of 

brokered deposits; 

• Respondents may file a notice 

informing the FDIC that the respondent 

is availing itself of the Primary Purpose 

Exception Based on the Placement of 

Less Than 25 Percent of Customer 

Assets Under Administration; 

• Respondents may file a notice 

informing the FDIC that the respondent 

is availing itself of the Primary Purpose 

Exception Based on Enabling 

Transactions; and 

• Respondents may file an 

application with the FDIC for a Primary 

Purpose Exception Not Based on a 

Designated Exception (reporting 

requirement to obtain or retain a 

benefit). 

The FDIC estimated the annual 

burden associated with the final rule 

based on the following assumptions and 

according to the methodology described 

below: 

1. The FDIC lacks the data necessary 

to determine the number of third parties 

which may avail themselves of the 

primary purpose exception based on 

placing less than 25 percent of customer 

assets under administration and 

therefore, may make a notice 

submission to the FDIC. When the 

notice of proposed rulemaking for this 

rule was published, the FDIC invited 

comments on how its estimates could be 

improved 104 but received no comments 

on the subject. 

The primary purpose exception based 

on placing less than 25 percent of 

customer assets under administration is 

expected to be utilized largely by 

broker-dealers. With few exceptions, 

broker-dealers must register with the 

Securities and Exchange Commission 

and be members of FINRA. There were 

3,517 FINRA registered broker-dealer 

firms in 2019. Some of the 3,517 brokerdealers may not engage in activity 

which meets the definition of ‘‘deposit 

broker,’’ while some firms which do 

engage in such activity may not be 

among the 3,517 FINRA registered 

broker-dealers. However, in the absence 

of data to estimate future respondents, 

consistent with the changes in the rule 

relative to the NPR, the FDIC assumes 

that 703 firms will submit notices for a 

‘‘designated exception’’ under the 

primary purpose exception based on 

placing less that 25 percent of customer 

assets under administration, in the 

initial year of implementation. Further, 


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the FDIC assumes that 176 firms will 

submit notices for a ‘‘designated 

exception’’ under the primary purpose 

exception based on placing less that 25 

percent of customer assets under 

administration, on average each year, an 

ongoing basis. 

2. The FDIC lacks the data necessary 

to determine the number of third parties 

which may avail themselves of the 

primary purpose exception based on 

enabling transactions and other business 

arrangements and may elect to make a 

notice submission to the FDIC. When 

the notice of proposed rulemaking for 

this rule was published, the FDIC 

invited comments on how its estimates 

could be improved but received no 

comments on the subject. 

The FDIC believes that the primary 

purpose exception based on enabling 

transactions and on other business 

arrangements will be utilized by firms 

engaged in deposit brokering. The FDIC 

lacks the data necessary to determine 

the number of firms which engage in 

deposit brokering. According to Census 

data, there are 1,223 establishments 

within the industry in which deposit 

brokers are classified. Not all 1,223 

establishments engage in deposit 

brokering, and some firms which engage 

in deposit brokering may be classified in 

another industry. In the absence of data 

to estimate future respondents, 

consistent with the changes in the rule 

relative to the NPR, the FDIC assumes 

that 245 firms will submit notices in 

reliance on the enabling transactions 

designated exception in the initial year 

of implementation. Finally, in the 

absence of data to estimate future 

respondents, the FDIC assumes that 61 

will file a notice in reliance upon the 

enabling transactions designated 

exception, or a designated exception 

identified in the future that requires a 

notice, and an additional 61 will submit 

an application, on average each year, on 

an ongoing basis. 

3. The FDIC lacks the data necessary 

to determine the number of third parties 

which may avail themselves of the 

primary purpose exception not based on 

one of the designated enabling 

transactions or placement of less than 

25 percent of customer assets under 

administration, and do not meet a 

designated exception. When the notice 

of proposed rulemaking for this rule was 

published, the FDIC invited comments 

on how its estimates could be improved 

but received no comments on the 

subject. 

The FDIC believes that the exceptions 

not based on a designated exception, 

which includes enabling transactions 

and placement of less than 25 percent 

of customer assets under administration, 

will be sought by firms engaged in 

deposit brokering. However, the FDIC is 

unable to determine the number of firms 

which engage in deposit brokering. 

According to Census data, there are 

1,223 establishments within the 

industry in which deposit brokers are 

classified. Not all 1,223 establishments 

engage in deposit brokering, and some 

firms which engage in deposit brokering 

may be classified in another industry. 

Additionally, the FDIC assumes that 245 

firms submit applications for a primary 

purpose exception in the initial year of 

implementation. Finally, in the absence 

of data to estimate future respondents, 

the FDIC assumes that an additional 61 

will submit an application for a primary 

purpose exception, on average each 

year, on an ongoing basis. 

4. The FDIC lacks the data necessary 

to determine the number of business 

lines for which firms may submit 

applications, and in the absence of a 

more refined estimate, assumed that all 

respondents submit one application. 

5. The FDIC estimated the amount of 

time required to complete each notice 

submission and application type. The 

notice submission for a primary purpose 

exception to the definition of deposit 

broker based on placing less than 25 

percent of customer assets under 

administration, by business line, with 

IDIs. For this type of submission two 

items are required: (1) The total amount 

of customer assets under control by the 

third party for that particular business 

line, and (2) the total amount of deposits 

placed by the third party on behalf of its 

customers, for that particular business 

line, at all IDIs, exclusive of the amount 

of brokered CDs being placed by that 

third party. Given the ‘‘bright line’’ 

nature of this primary purpose 

exception, and the limited number of 

line items required, the FDIC estimated 

it would take each respondent three 

hours on average to gather the material 

and submit the information required for 

this notice submission. 

6. The notice submission for a 

primary purpose exception to the 

definition of deposit broker based on 

placing funds to enable transactions 

requires an entity to submit the 

following information: A copy of the 

form of contract used with customers 

and with the IDIs in which the third 

party is placing deposits, showing that 

all of its customer deposits are in 

transaction accounts, and that no 

interest, fees, or other remuneration is 

being provided to or paid for the 

transaction accounts. Finally, a 

submission of this type would need to 

explain how its customers utilize its 

services for the purpose of making 

payments and not for the receipt of a 

deposit placement service or deposit 

insurance: And provide a description of 

the deposit placement arrangement. 

Because this submission requires more 

time to prepare than the first, the FDIC 

estimated it would take each respondent 

five hours on average the gather the 

required material and submit the notice. 

7. The application for a primary 

purpose exception from the definition of 

deposit broker not based on a 

designated exception, which includes 

enabling transactions and placement of 

less than 25 percent of customer assets 

under administration, requires the items 

enumerated in the regulation, and due 

to the number of items requested, the 

FDIC estimates it would take each 

respondent 10 hours on average to 

gather the material required and submit 

the application. 

8. Each notice submission or 

application has associated quarterly 

(ongoing) reporting requirements. For 

approved applications these ongoing 

requirements are to be spelled out by 

the FDIC in its written approval. For the 

first notice submission, the FDIC 

estimates it would take each respondent 

an average of 30 minutes per quarter to 

gather the information and submit the 

information for an annual average of 2 

burden hours. For the second notice 

submission, the FDIC estimates it will 

take reach respondent an average of 30 

minutes per year to gather and submit 

the information. The FDIC assumes that 

the initial quarterly submission may 

take longer to prepare, but once 

reporting systems are in place, the FDIC 

believes an average of 30 minutes per 

quarter is a reasonable estimate for this 

ongoing reporting burden. For the 

application requirement, due to its 

greater number of required items, is 

estimated to take each respondent an 

average of 0.25 hours per quarter to 

gather the information and submit it for 

an annual average of 1 burden hour. 

9. The FDIC revised its estimates for 

the information collection ‘‘Application 

for Waiver of Prohibition on Acceptance 

of Brokered Deposits.’’ The FDIC 

estimates nine IDIs will file this 

application each year, on average. Each 

IDI applicant will spend six hours, on 

average, to file. Thus, the FDIC 

estimates the average annual burden at 

54 hours. 


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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 6783 

105 44 U.S.C. 3501–3521. 

106 5 U.S.C. 601 et seq. 

107The SBA defines a small banking organization 

as having $600 million or less in assets, where an 

organization’s ‘‘assets are determined by averaging 

the assets reported on its four quarterly financial 

statements for the preceding year.’’ See 13 CFR 

121.201 (as amended by 84 FR 34261, effective Aug. 

19, 2019). In its determination, the ‘‘SBA counts the 

receipts, employees, or other measure of size of the 

concern whose size is at issue and all of its 

domestic and foreign affiliates.’’ See 13 CFR 

121.103. Following these regulations, the FDIC uses 

a covered entity’s affiliated and acquired assets, 

averaged over the preceding four quarters, to 

determine whether the covered entity is ‘‘small’’ for 

the purposes of RFA. 

ESTIMATED ANNUAL BURDEN

Information collection (IC) description Type of 

burden 

Obligation to 

respond 

Estimated 

average 

number of 

respondents 

Estimated 

number of 

responses 

Estimated 

time per 

response 

(hours) 

Frequency of 

response 

Total 

estimated 

annual burden 

(hours) 

Initial Implementation 

Notice submission for Primary Purpose Exception Based on the Placement of Less Than 

25 Percent of Customer Assets Under Administration.

Reporting ...... Obtain or Retain a 

Benefit.

703 1 3 On Occasion ... 2,109 

Notice submission for Primary Purpose Exception Based on Enabling Transactions.Reporting ...... Obtain or Retain a 

Benefit.

245 1 5 On Occasion ... 1,225 

Application for Primary Purpose Exception Not 

Based on the Business Arrangements that 

do not meet a Designated Exception.

Reporting ...... Obtain or Retain a 

Benefit.

245 1 10 On Occasion ... 2,450 

Ongoing 

Notice submission for Primary Purpose Exception Based on the Placement of Less Than 

25 Percent of Customer Assets Under Administration.

Reporting ...... Obtain or Retain a 

Benefit.

176 4 0.5 Quarterly ......... 352 

Notice Submission for Primary Purpose Exception Based on Enabling Transactions.Reporting ...... Obtain or Retain a 

Benefit.

61 1 0.5 Annual ............. 30.5 

Reporting for Primary Purpose Exception Not 

Based on the Business Arrangements that 

do not meet a Designated Exception.

Reporting ...... Obtain or Retain a 

Benefit.

61 4 0.25 Quarterly ......... 61 

Application for Waiver of Prohibition on Acceptance of Brokered Deposits.Reporting ...... Obtain or Retain a 

Benefit.

9 1 6 On Occasion ... 54 

Total Estimated Annual Burden Hours ....... ....................... .............................. .................... .................... .................... ......................... 6,281.5 

Note: The estimated number of respondents in the Initial Implementation section is an annual average calculated over three years. 

2. Interest Rate Restrictions (RIN 

3064–AF02) 

In accordance with the requirements 

of the PRA,105 the FDIC may not 

conduct or sponsor, and the respondent 

is not required to respond to, an 

information collection unless it displays 

a currently valid OMB control number. 

This final rule does not create a new or 

revise an existing information collection 

as it relates to the interest rate 

restrictions. Therefore, no PRA 

clearance submission to OMB will be 

made. 

B. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

generally requires that, in connection 

with a final rule, an agency prepare and 

make available for public comment a 

final regulatory flexibility analysis 

describing the impact of the rule on 

small entities.106 A regulatory flexibility 

analysis is not required, however, if the 

agency certifies that the rule will not 

have a significant economic impact on 

a substantial number of small entities. 

The Small Business Administration 

(SBA) has defined ‘‘small entities’’ to 

include banking organizations with total 

assets less than or equal to $600 

million.107

Generally, the FDIC considers a 

significant effect to be a quantified effect 

in excess of 5 percent of total annual 

salaries and benefits per institution, or 

2.5 percent of total noninterest 

expenses. The FDIC believes that effects 

in excess of these thresholds typically 

represent significant effects for FDICinsured institutions. 

1. Brokered Deposits Final Rule (AE94) 

The FDIC does not believe that the 

rule will have a significant economic 

effect on a substantial number of small 

entities. However, some expected effects 

of the rule are difficult to assess or 

accurately quantify given current 

information, therefore the FDIC has 

included a Final Regulatory Flexibility 

Act (RFA) Analysis in this section. 

Reasons Why This Action Is Being 

Considered 

As previously discussed, the FDIC 

issued an ANPR in 2018 to obtain input 

from the public on its brokered deposit 

and interest rate regulations in light of 

significant changes in technology, 

business models, the economic 

environment, and products since the 

agency’s regulations relating to brokered 

deposits were adopted. Generally 

speaking, commenters offered 

information and expressed options that 

suggested the FDIC needed to clarify 

and update its historical interpretation 

of the ‘‘deposit broker’’ definition to 

better align with current market 

practices and risks associated with 

brokered deposits. 

Policy Objectives 

As previously discussed, the FDIC is 

amending its regulations relating to 

brokered deposits in order to modernize 

those regulations to reflect recent 

technological changes and innovations 

that have occurred. Additionally, the 

FDIC seeks to continue to promote safe 

and sound practices by FDIC-insured 

depository institutions. 

Legal Basis 

The FDIC is adopting this rule under 

authorities granted by Section 29 of the 

FDI Act. The law restricts troubled 

institutions (i.e., those that are not well 

capitalized) from (1) accepting deposits 

by or through a deposit broker without 

a waiver and (2) soliciting deposits by 

offering rates of interest on deposits that 

were significantly higher than the 

prevailing rates of interest on deposits 

offered by other insured depository 

institutions in such depository 

institution’s normal market area. For a 


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6784 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 

108Call Report, June 30, 2020. Nine insured 

domestic branches of foreign banks are excluded 

from the count of FDIC-insured depository 

institutions. These branches of foreign banks are not 

‘‘small entities’’ for purposes of the RFA. 

109 Information based on June 30, 2020 

Consolidated Reports of Condition and Income. The 

9 institutions do not include any quantitatively well 

capitalized institutions that may have been 

administratively classified as less than well 

capitalized. See generally, FDIC—12 CFR 

324.403(b)(1)(v); Board of Governors of the Federal 

Reserve System—12 CFR 208.43(b)(1)(v); Office of 

the Comptroller of the Currency—12 CFR 

6.4(c)(1)(v). 

110See FDIC’s 2011 Study on Core and Brokered 

Deposits, July 8, 2011. 

more detailed discussion of the rule’s 

legal basis please refer to section I(B). 

Description of the Rule 

A person meets the ‘‘deposit broker’’ 

definition under Section 29 of the FDI 

Act if it is 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. An agent or 

trustee meets the ‘‘deposit broker’’ 

definition when establishing a deposit 

account to facilitate a business 

arrangement with an insured depository 

institution to use the proceeds of the 

account to fund a prearranged loan. 

Additionally, Section 29 provides nine 

statutory exceptions to the definition of 

deposit broker and, as noted earlier, the 

FDIC added one regulatory exception to 

the definition. The FDIC is adopting a 

new framework for analyzing certain 

provisions of the statutory definition. 

Among other things, through this 

rulemaking, the FDIC is amending the 

primary purpose exception. For a more 

detailed description of the rule please 

refer to section I(C) ‘‘Final Rule and 

Discussion of Comments.’’ 

Small Entities Affected 

The FDIC insures 5,075 depository 

institutions, of which 3,665 are defined 

as small institutions by the terms of the 

RFA.108 Additionally, of those 3,665 

small, FDIC-insured institutions, 1,086 

currently report holding some volume of 

brokered deposits. Further, of those 

3,665 small, FDIC-insured institutions, 

3,656 are currently classified as well 

capitalized, while nine are less than 

well capitalized based on capital ratios 

reported in their Call Reports.109

Expected Effects 

There are potentially three four 

categories of effects of the rule on small, 

FDIC-insured institutions: Effects 

applicable to potentially any small, 

insured institution; effects applicable to 

small, less than well-capitalized 

institutions; effects applicable to 

nonbank subsidiaries of small, FDICinsured institutions that may or may not 

be deemed deposit brokers; and 

reporting compliance requirements for 

small, covered entities. 

All Small, FDIC-Insured Institutions 

The rule could immediately affect the 

1,086 small, FDIC-insured institutions 

currently reporting brokered deposits. 

Going forward, the rule could affect all 

3,665 small, FDIC-insured institutions 

whose decisions regarding the types of 

deposits to accept could be affected. 

The rule would benefit insured 

institutions and other interested parties 

by providing greater legal clarity 

regarding the classification and 

treatment of brokered deposits. The 

FDIC believes that as result of this 

increased clarity, the rule would reduce 

the extent of reliance by banks and third 

parties on FDIC Staff Advisory Opinions 

and informal written and telephonic 

inquiries with FDIC staff. This would 

have two important benefits. First, the 

likelihood of inconsistent outcomes, 

where some institutions may report 

certain types of deposits as brokered 

and others do not, would be reduced. 

Second, to the extent the classification 

of deposits as brokered or non-brokered 

can be clearly addressed in regulation, 

the need for potentially time-consuming 

analyses can be minimized. 

The FDIC has heard from a number of 

insured institutions that they perceive a 

stigma associated with accepting 

brokered deposits. Historical experience 

has been that higher use of deposits 

currently reported to the FDIC as 

brokered has been associated with 

higher probability of bank failure and 

higher deposit insurance fund loss 

rates.110 The funding characteristics of 

brokered deposits, however, are nonuniform. For example, brokered CDs are 

often used by bank customers searching 

for relatively high yields on their 

insured deposits, rather than as part of 

a relationship with a bank, and as such 

these deposits may be less stable and 

more subject to deposit interest rate 

competition. The behavior of deposits 

placed through certain sweep 

arrangements or that underlie prepaid 

card programs may be more based on a 

business relationship than on interest 

rate competition. Given limitations on 

available data, however, historical 

studies have not been able to 

differentiate the experience of banks 

based on the different types of deposits 

accepted. To the extent the rule reduces 

bankers’ perception of a stigma 

associated with certain types of 

deposits, more institutions may be 

incentivized to accept such deposits. 

The rule could incentivize the 

development of banking relationships 

between small, FDIC-insured 

institutions and other firms. The new 

opportunities could spur growth in the 

types of companies that provide third 

party deposit placement services, 

potentially resulting in greater access to, 

or use of, bank deposits by a greater 

variety of customers. Further, such 

growth could be of benefit to small, 

FDIC-insured institutions allowing them 

to compete against large financial 

institutions that are utilizing internet 

based deposit gathering methods across 

the country. It is difficult to accurately 

estimate such potential effects with the 

information available to the FDIC, 

because such effects depend, in part, on 

the future commercial development of 

such activities. 

FDIC deposit insurance assessments 

would be affected by the changes to the 

definition of deposit broker, potentially 

affecting any insured institution that 

currently accepts brokered deposits or 

might do so in the future. Since 2009, 

significant concentrations of brokered 

deposits can increase an institution’s 

quarterly assessments, depending on 

other factors. To the extent that certain 

deposits would no longer be considered 

brokered deposits under this rule, a 

bank’s assessment may decrease, all else 

equal. 

Small, FDIC-insured institutions 

could benefit from the rule by having 

greater certainty and greater access to 

funding sources that would no longer be 

designated as brokered deposits, thereby 

easing their liquidity planning in the 

event they fall below well capitalized 

and become subject to the restrictions 

set forth in the law and regulations and 

reducing the likelihood that a liquidity 

failure of an otherwise viable institution 

might be precipitated by the brokered 

deposit regulations. Another benefit of 

the rule could result if greater access to 

funding sources supported small FDICinsured institutions’ ability to provide 

credit. However, these effects are 

difficult to estimate because the 

decision to receive third party deposits 

depends on the specific financial 

conditions of each bank, fluctuating 

market conditions for third party 

deposits, and future management 

decisions. 

The rule would establish reporting 

requirements for IDIs and other nonbank 

third parties that apply for and maintain 

a primary purpose exception. As noted 

previously, however, the FDIC 

anticipates that nonbank third parties 

are likely to apply on their own behalf, 

given that the information required to 


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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 6785 

111Call Report data, June 30, 2020. 

112 Id. 

113The FDIC will look to each separately 

incorporated legal entity as its own ‘‘third party’’ 

for purposes of this application process. 

114For the applications relating to exceptions 

from the definition of ‘‘deposit broker,’’ the FDIC 

used the wage estimates from the Bureau of Labor 

Statistics (BLS) ‘‘National Industry Specific 

Occupational Employment and Wage Estimates: 

Securities, Commodity Contracts, and Other 

Financial Investments and Related Activities 

Sector’’ (May 2018), while for the Application for 

Waiver of Prohibition on Acceptance of Brokered 

Deposits, the FDIC used the wage estimates from 

the BLS ‘‘National Industry-Specific Occupational 

Employment and Wage Estimates: Depository Credit 

Intermediation Sector’’ (May 2018). Other BLS data 

used were the Employer Cost of Employee 

Compensation data (June 2019), and the Consumer 

Price Index (June 2019). Hourly wage estimates at 

the 75th percentile wage were used, except when 

the estimate was greater than $100, in which case 

$100 per hour was used, as the BLS does not report 

hourly wages in excess of $100. The 75th percentile 

wage information reported by the BLS in the 

Specific Occupational Employment and Wage 

Estimates does not include health benefits and 

other non-monetary benefits. According to the June 

2019 Employer Cost of Employee Compensation 

data, compensation rates for health and other 

benefits are 33.8 percent of total compensation. 

Additionally, the wage has been adjusted for 

Continued 

complete an application will be in 

possession of the nonbank third party 

(rather than the bank). The FDIC views 

the potential burden on small FDICinsured institutions under the rule as 

minimal. 

Less Than Well-Capitalized Institutions 

As discussed previously, the 

acceptance of brokered deposits is 

subject to statutory and regulatory 

restrictions for those banks that are less 

than well capitalized. Adequately 

capitalized banks may not accept 

brokered deposits without a waiver from 

the FDIC, and banks that are less than 

adequately capitalized may not accept 

them at all. As a result, adequately 

capitalized and undercapitalized banks 

generally hold less brokered deposits— 

as of June 30, 2020, brokered deposits 

make up approximately 1.3 percent of 

domestic deposits held by less than well 

capitalized banks, well below the 7.7 

percent held by all IDIs.111 By generally 

reducing the scope of deposits that are 

considered brokered, the rule allows 

less than well capitalized banks to 

increase their holdings of deposits that 

are currently reported as brokered but 

will not be reported as brokered under 

the final rule. As of June 30, 2020, there 

are only nine less than well capitalized 

small, FDIC-insured institutions based 

on Call Report information. These banks 

hold approximately $2.5 billion in 

assets, $1.7 billion in domestic deposits, 

and $21.7 million in brokered 

deposits.112 These banks could be 

directly affected by the rule in that they 

could potentially accept more or 

different types of deposits currently 

designated as brokered. 

Broadly speaking with respect to 

future developments, another aspect of 

brokered deposit restrictions is that, 

consistent with their statutory purpose, 

they act as a constraint on growth and 

risk-taking by troubled institutions. 

Conversely, as noted previously, access 

to funding can prevent needless 

liquidity failures of viable institutions. 

Nonbank Subsidiaries of Small, FDICInsured Institutions That May or May 

Not Be Deposit Brokers 

The revisions to the brokered deposit 

regulations could have effects on some 

nonbank subsidiaries of small, FDICinsured institutions. For example, 

subsidiaries of small, FDIC-insured 

institutions that may currently meet the 

deposit broker definition would no 

longer be a deposit broker under the 

rule if they solely place deposits at one 

IDI. Additionally, some nonbank 

subsidiaries of small, FDIC-insured 

institutions could employ or seek to 

determine whether they meet the 

primary purpose exception. This may 

include submitting notices or filing 

applications by some third parties that 

seek to avail themselves of the primary 

purpose exception, or by banks 

submitting notices or filing application 

on behalf of such entities. Ongoing 

reporting by these entities is also 

potentially expected under the final 

rule. 

Reporting Requirements 

As previously discussed, the final rule 

establishes some reporting obligations 

for certain insured depository 

institutions or nonbank third parties 113

that meets the ‘‘deposit broker’’ 

definition by either placing (or 

facilitating the placement of) customer 

deposits at insured depository 

institutions and seeks to be excluded 

from that definition. The rule 

establishes, for entities that do not 

engage in one of the designated 

expectations, an application process 

under which any agent or nominee that 

seeks to avail itself of the primary 

purpose exception, or an insured 

depository institution acting on behalf 

of an agent or nominee, could request 

that the FDIC consider certain deposits 

as non-brokered as a result of the 

primary purpose exception. As 

previously discussed, relative to the 

NPR, the final rule establishes 

additional designated exceptions that 

will not require an application. 

However, institutions that are eligible 

for these designated exceptions will be 

required to file a notice submission to 

the FDIC. Further, certain entities 

granted an exception under the primary 

purpose exception may also be subject 

to periodic reporting requirements 

under the final rule. These reporting 

requirements will allow the FDIC to 

monitor the applicability of the primary 

purpose exception. Finally, in the event 

that an entity that has applied and been 

approved for a primary purpose 

exception has undergone material 

changes to its business that renders the 

business no longer eligible for the 

primary purpose exception, the FDIC 

will be able to require the entity to refile 

a notice, submit an application, reapply 

for approval, impose additional 

conditions on the approval, or withdraw 

a previously granted approval, with 

notice to the entity. 

As previously discussed in the 

Expected Effect Section, the final rule 

establishes reporting requirements for 

an estimated 176 and 703 firms during 

the year of implementation, and 

between 9 and 245 firms each year after. 

The FDIC does not currently have access 

to data that would facilitate an accurate 

estimate of how many of these firms are 

considered ‘‘small’’ for the purposes of 

RFA. Therefore, the FDIC believes it is 

possible that the reporting requirements 

of the final rule could affect up to 703 

small entities during the year of 

implementation, and up to 245 small 

entities each year afterword. 

As previously discussed in the 

expected Effects Section, in the initial 

year of implementation the FDIC 

estimates that the notice for the ‘‘25 

percent’’ business relationship will be 

three hours to complete on average, and 

0.5 hours per quarter each year after 

that. In the initial year of 

implementation, the FDIC estimates that 

the notice for the ‘‘enabling 

transactions’’ will take 5 hours to 

complete on average, and 0.5 hours each 

year after that. In the initial year of 

implementation, the FDIC estimates that 

the application for exception based on 

not enabling transactions and other 

business arrangements, or placing less 

that 25 percent of customer assets under 

management will take 10 hours to 

complete on average, and 0.25 hour per 

quarter each year after that. Therefore, 

based on the above assumptions and 

methodology, the FDIC estimates the 

final rule imposes an annual reporting 

burden of 5,784 hours for the first year 

and 497.5 hours each year after that for 

all affected entities. This equates to 

estimated compliance costs of $613,740 

in the first year and $51,589 each year 

after that for all effected entities.114


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6786 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 

inflation according to BLS data on the Consumer 

Price Index for Urban Consumers (CPI–U), so that 

it is contemporaneous with the non-wage 

compensation statistic. The inflation rate was 1.86 

percent between May 2018 and June 2019. 

115 June 30, 2020, Call Report data. 

116 Id. 

117The FDIC surveyed rates offered on savings, 

interest checking, and money market demand 

accounts, as well as CDs of 1, 3, 6, 12, 24, 36, 48, 

and 60-month maturities. Only non-jumbo accounts 

were considered, and not every institution offered 

every type of account. 

118 12 U.S.C. 4802(a). 

119 12 U.S.C. 4802. 

Again the FDIC does not currently have 

access to data that would facilitate an 

accurate estimate of how many of these 

firms are considered ‘‘small’’ for the 

purposes of RFA. Therefore, therefore 

the FDIC believes it is possible that the 

reporting requirements of the final rule 

could pose reporting compliance costs 

up to $613,740 in the first year for small 

entities, and up to $51,589 each year 

after for small entities. 

Other Statutes and Federal Rules 

The FDIC has not identified any likely 

duplication, overlap, and/or potential 

conflict between this proposed rule and 

any other federal rule. 

2. Interest Rate Restrictions (RIN 3064– 

AF02) 

FDIC is revising its regulations 

relating to interest rate restrictions that 

apply to less than well capitalized 

insured depository institutions, by 

amending the methodology for 

calculating the national rate and 

national rate cap. The also modifies the 

current local rate cap calculation and 

process. 

Specifically, the rule defines the 

national rate for a deposit product as the 

average rate for that product, where the 

average is weighted by domestic deposit 

share. The proposed national rate cap is 

the higher of (1) the national rate, as 

revised to be based on weighting by 

deposits rather than branches (and 

including credit unions), plus 75 basis 

points; or (2) 120 percent of the current 

yield on similar maturity U.S. Treasury 

obligations, plus 75 basis points. 

Because the FDIC’s experience 

suggests some institutions compete for 

particular products within their local 

market area, the rule would continue to 

provide a local rate cap process. 

Specifically, the rule would allow less 

than well capitalized institutions to 

provide evidence that any bank or credit 

union in its local market offers a rate on 

particular deposit product in excess of 

the national rate cap. If sufficient 

evidence is provided, then the less than 

well capitalized institution would be 

allowed to offer 90 percent of the 

competing institution’s rate on the 

particular product. 

As described in section II(G), above, 

the FDIC is adopting the national rate 

methodology as proposed, with a 

revision to include the rates offered by 

credit unions in addition to the rates 

offered by FDIC-insured institutions. 

Under the final rule, the national rate 

for a particular deposit product will be 

the deposit-weighted average rate for 

that product. 

The FDIC is also adopting the 

proposed methodology for calculating 

the national rate caps, with a 

modification suggested by commenters. 

The proposed methodology defined the 

national rate cap for a particular deposit 

product as the higher of the national 

rate plus 75 basis points, or the 95th 

percentile of rates weighted by domestic 

deposits. The adopted methodology 

defines the national rate cap for a 

particular deposit product as the higher 

of the national rate plus 75 basis points 

or 120 percent of the current yield on 

a similar maturity U.S. Treasury 

obligation, plus 75 basis points. This 

‘‘Treasury-based’’ second prong would 

also provide that, for non-maturity 

deposits, the rate cap is defined as the 

midpoint of the target range for the 

Federal funds rate, plus 75 basis points. 

Finally, for the local rate cap the FDIC 

is adopting the proposed cap of 90 

percent of the highest offered rate. The 

final rule also eliminates the current 

two-step process where less than well 

capitalized institutions request a high 

rate determination from the FDIC and, if 

approved, calculate the prevailing rate 

within local markets. Instead, a less 

than well capitalized institution must 

notify its appropriate FDIC regional 

office that it intends to offer a rate that 

is above the national rate cap and 

provide evidence that it is competing 

against an institution or credit union 

that is offering a rate in its local market 

area in excess of the national rate cap. 

The institution would then be allowed 

to offer 90 percent of the rate offered by 

a competitor in the institution’s local 

market area. 

As of June 30, 2020, the FDIC insured 

5,075 institutions, of which 3,665 are 

small for purposes of the RFA.115 The 

adopted national rate caps will affect 

less than well-capitalized small 

institutions if those institutions 

currently offer deposit products with 

rates above the adopted caps and their 

local competitors do not offer similarly 

high rates. As of June 30, 2020, 10 

insured institutions are quantitatively 

less than well-capitalized, of which nine 

are small for purposes of the RFA.116

None of the eight small, less than wellcapitalized institutions for which the 

FDIC had interest rate data offered rates 

above either the current national rate 

caps or the national rate caps as defined 

in this final rule across 11 deposit 

products analyzed for the month of 

September.117 Thus, the FDIC does not 

believe the final rule will significantly 

affect any small, FDIC-insured 

institutions. 

Accordingly, the FDIC certifies that 

this rule will not have a significant 

economic effect on a substantial number 

of small entities. 

One commenter to the NPR suggested 

that the FDIC sample a larger group of 

small banks which could become less 

than well capitalized and run stress 

tests simulating various interest rate 

environments to determine whether the 

institutions would be able to raise or 

retain funding under the proposed rate 

caps. Such a stress testing exercise 

would be difficult and heavily 

dependent on assumptions not only 

about the shape and level of the 

Treasury yield curve, but about national 

and local demand for loans and deposits 

and the nature of deposit interest rate 

competition resulting from these factors. 

In response to the comment, the FDIC 

notes that as described throughout this 

preamble, the rate caps under this rule 

are constructed to be more responsive to 

the prevailing interest rate environment 

and are generally expected to be 

moderately less restrictive than the 

current rate caps. 

C. Riegle Community Development and 

Regulatory Improvement Act of 1994 

Pursuant to section 302(a) of the 

Riegle Community Development and 

Regulatory Improvement Act 

(RCDRIA),118 in determining the 

effective date and administrative 

compliance requirements for new 

regulations that impose additional 

reporting, disclosure, or other 

requirements on IDIs, each Federal 

banking agency must consider, 

consistent with the principle of safety 

and soundness and the public interest, 

any administrative burdens that such 

regulations would place on IDIs, 

including small IDIs, and customers of 

IDIs, as well as the benefits of such 

regulations. In addition, section 302(b) 

of RCDRIA requires new regulations and 

amendments to regulations that impose 

additional reporting, disclosures, or 

other new requirements on IDIs 

generally to take effect on the first day 

of a calendar quarter that begins on or 

after the date on which the regulations 

are published in final form.119 The FDIC 

considered the administrative burdens 


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120 5 U.S.C. 801 et seq. 

121 5 U.S.C. 801(a)(3). 

122 5 U.S.C. 804(2). 

123 12 U.S.C. 4809. 

and benefits of the final rule in 

determining its effective date and 

administrative compliance 

requirements. As such, the final rule 

will be effective on April 1, 2021, with 

full compliance with the brokered 

deposit part of the regulation extended 

to January 1, 2022. 

D. Congressional Review Act 

For purposes of the Congressional 

Review Act, the OMB makes a 

determination as to whether a final rule 

constitutes a ‘‘major’’ rule.120 If a rule is 

deemed a ‘‘major rule’’ by the OMB, the 

Congressional Review Act generally 

provides that the rule may not take 

effect until at least 60 days following its 

publication.121 The Congressional 

Review Act defines a ‘‘major rule’’ as 

any rule that the Administrator of the 

Office of Information and Regulatory 

Affairs of the OMB finds has resulted in 

or is likely to result in (A) an annual 

effect on the economy of $100,000,000 

or more; (B) a major increase in costs or 

prices for consumers, individual 

industries, Federal, State, or local 

government agencies or geographic 

regions; or (C) significant adverse effects 

on competition, employment, 

investment, productivity, innovation, or 

on the ability of United States-based 

enterprises to compete with foreign 

based enterprises in domestic and 

export markets.122 As required by the 

Congressional Review Act, the FDIC 

will submit the final rule and other 

appropriate reports to Congress and the 

Government Accountability Office for 

review. 

E. Use of Plain Language 

Section 722 of the Gramm-Leach 

Bliley Act 123 requires the Federal 

banking agencies to use plain language 

in all proposed and final rules 

published after January 1, 2000. The 

FDIC has sought to present the final rule 

in a simple and straightforward manner 

and did not receive any comments on 

the use of plain language. 

List of Subjects 

12 CFR Part 303 

Administrative practice and 

procedure, Bank deposit insurance, 

Banks, banking, Reporting and 

recordkeeping requirements, Savings 

Associations. 

12 CFR Part 337 

Banks, banking, Reporting and 

recordkeeping requirements, Savings 

associations, Securities. 

Authority and Issuance 

For the reasons stated in the 

preamble, the FDIC amends 12 CFR 

parts 303 and 337 as follows: 

PART 303—FILING PROCEDURES 

■ 1. The authority citation for part 303 

continues to read as follows: 

Authority: 12 U.S.C. 378, 1464, 1813, 1815, 

1817, 1818, 1819(a), (Seventh and Tenth), 

1820, 1823, 1828, 1831a, 1831e, 1831o, 

1831p–1, 1831w, 1835a, 1843(I), 3104, 3105, 

3108, 3207, 5414, 5415 and 15 U.S.C. 1601– 

1607. 

■ 2. Revise § 303.243 to read as follows: 

§ 303.243 Brokered deposits. 

(a) Brokered deposit waivers—(1) 

Scope. Pursuant to section 29 of the FDI 

Act (12 U.S.C. 1831f) and part 337 of 

this chapter, an adequately capitalized 

insured depository institution may not 

accept, renew or roll over any brokered 

deposits unless it has obtained a waiver 

from the FDIC. A well-capitalized 

insured depository institution may 

accept brokered deposits without a 

waiver, and an undercapitalized insured 

depository institution may not accept, 

renew or roll over any brokered deposits 

under any circumstances. This section 

contains the procedures to be followed 

to file with the FDIC for a brokered 

deposit waiver. The FDIC will provide 

notice to the depository institution’s 

appropriate federal banking agency and 

any state regulatory agency, as 

appropriate, that a request for a waiver 

has been filed and will consult with 

such agency or agencies, prior to taking 

action on the institution’s request for a 

waiver. Prior notice and/or consultation 

shall not be required in any particular 

case if the FDIC determines that the 

circumstances require it to take action 

without giving such notice and 

opportunity for consultation. 

(2) Where to file. Applicants shall 

submit a letter application to the 

appropriate FDIC office. 

(3) Content of filing. The application 

shall contain the following: 

(i) The time period for which the 

waiver is requested; 

(ii) A statement of the policy 

governing the use of brokered deposits 

in the institution’s overall funding and 

liquidity management program; 

(iii) The volume, rates and maturities 

of the brokered deposits held currently 

and anticipated during the waiver 

period sought, including any internal 

limits placed on the terms, solicitation 

and use of brokered deposits; 

(iv) How brokered deposits are costed 

and compared to other funding 

alternatives and how they are used in 

the institution’s lending and investment 

activities, including a detailed 

discussion of asset growth plans; 

(v) Procedures and practices used to 

solicit brokered deposits, including an 

identification of the principal sources of 

such deposits; 

(vi) Management systems overseeing 

the solicitation, acceptance and use of 

brokered deposits; 

(vii) A recent consolidated financial 

statement with balance sheet and 

income statements; and 

(viii) The reasons the institution 

believes its acceptance, renewal, or 

rollover of brokered deposits would 

pose no undue risk. 

(4) Additional information. The FDIC 

may request additional information at 

any time during processing of the 

application. 

(5) Expedited processing for eligible 

depository institutions. An application 

filed under this section by an eligible 

depository institution as defined in this 

paragraph will be acknowledged in 

writing by the FDIC and will receive 

expedited processing, unless the 

applicant is notified in writing to the 

contrary and provided with the basis for 

that decision. For the purpose of this 

section, an applicant will be deemed an 

eligible depository institution if it 

satisfies all of the criteria contained in 

§ 303.2(r) except that the applicant may 

be adequately capitalized rather than 

well-capitalized. The FDIC may remove 

an application from expedited 

processing for any of the reasons set 

forth in § 303.11(c)(2). Absent such 

removal, an application processed 

under expedited procedures will be 

deemed approved 21 days after the 

FDIC’s receipt of a substantially 

complete application. 

(6) Standard processing. For those 

filings which are not processed 

pursuant to the expedited procedures, 

the FDIC will provide the applicant 

with written notification of the final 

action as soon as the decision is 

rendered. 

(7) Conditions for approval. A waiver 

issued pursuant to this section shall: 

(i) Be for a fixed period, generally no 

longer than two years, but may be 

extended upon refiling; and 

(ii) May be revoked by the FDIC at any 

time by written notice to the institution. 

(b) Primary purpose exception notices 

and applications—(1) Scope. This 

section sets forth a process for an agent 

or nominee, or an insured depository 

institution on behalf of an agent or 


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nominee, to notify the FDIC that it will 

rely upon a designated exception in 

§ 337.6(a)(5)(v)(I)(1)(i) and (ii) of this 

chapter. This section also sets forth a 

process for an agent or nominee, or an 

insured depository institution on behalf 

of an agent or nominee, to apply for the 

primary purpose exception, as described 

in § 337.6(a)(5)(v)(I)(2) of this chapter. 

(2) Definitions. For purposes of this 

paragraph (b): 

(i) Third party means an agent or 

nominee that submits a notice that it 

will rely upon a designated exception in 

§ 337.6(a)(5)(v)(I)(1)(i) and (ii) of this 

chapter or applies to be excluded from 

the definition of deposit broker 

pursuant to the primary purpose 

exception as described in 

§ 337.6(a)(5)(v)(I)(2) of this chapter. 

(ii) Notice filer means a third party or 

an insured depository institution on 

behalf of a third party, that submits a 

written notice that the third party will 

rely upon a designated business 

exception in § 337.6(a)(5)(v)(I)(1)(i) and 

(ii) of this chapter. 

(iii) Applicant means a third party, or 

an insured depository institution on 

behalf of a third party, that applies to be 

excluded from the definition of deposit 

broker pursuant to the primary purpose 

exception, as described in 

§ 337.6(a)(5)(v)(I)(2) of this chapter. 

(3) Notice requirement for designated 

business exceptions. A third party, or an 

insured depository institution on behalf 

of a third party, must notify the FDIC 

through a written notice that the third 

party will rely upon a designated 

business exception described in 

§ 337.6(a)(5)(v)(I)(1)(i) and (ii) of this 

chapter in order to rely on that 

designated business exception. 

(i) Contents of notice. The notice must 

include: The designated exception upon 

which the third party will rely; a brief 

description of the business line; the 

applicable specific contents for the 

designated exception; either a statement 

that there is no involvement of any 

additional third party who qualifies as 

a deposit broker or a brief description of 

any additional third party that may 

qualify as a deposit broker; and if the 

notice is provided by a nonbank third 

party, a list of the insured depository 

institutions that are receiving deposits 

by or through the particular business 

line. The applicable specific contents 

for the following designated exceptions 

are: 

(A) 25 percent test (as described in 

§ 337.6(a)(5)(v)(I)(1)(i) of this chapter). 

(1) The total amount of customer assets 

under administration by the third party 

for that particular business line; and 

(2) The total amount of deposits 

placed by the third party on behalf of its 

customers, for that particular business 

line, at all depository institutions, being 

placed by that third party. 

(B) Enabling transactions test (as 

described in § 337.6(a)(5)(v)(I)(1)(ii) of 

this chapter). (1) Contractual evidence 

that there is no interest, fees, or other 

remuneration, being paid to any 

customer accounts; and 

(2) A certification that all customer 

deposits that are placed at insured 

depository institutions are in 

transaction accounts. 

(ii) Additional information for 

notices. The FDIC may request 

additional information from the notice 

filer at any time after receipt of the 

notice. 

(iii) Additional notice filers. The FDIC 

may include notice and/or reporting 

requirements as part of a designated 

exception identified under 

§ 337.6(a)(5)(v)(I)(2)(xiv) of this chapter. 

(iv) Subsequent notices. A notice filer 

that previously submitted a notice 

under this section shall submit a 

subsequent notice to the FDIC if, at any 

point, the notice filer no longer meets 

the designated business exception that 

was the subject of its previous notice. 

(v) Ongoing requirements for notice 

filers. Notice filers that submit a notice 

under the 25 percent test must provide 

quarterly updates to the FDIC on the 

figures described in paragraph 

(b)(3)(i)(A) of this section that were 

provided as part of the written notice. 

Notice filers that submit a notice under 

the enabling transactions test must 

provide an annual certification to the 

FDIC that the third party continues to 

place all customer funds at insured 

depository institutions into transaction 

accounts and that customers do not 

receive any interest, fees, or other 

remuneration. 

(vi) Revocation of primary purpose 

exception. The FDIC may, with notice, 

revoke a primary purpose exception of 

a third party, or a person required to 

submit a notice under paragraph 

(b)(3)(iii) of this section, that qualifies 

for the primary purpose exception due 

to reliance on a designated exception, if: 

(A) The third party no longer meets 

the criteria for a designated exception; 

(B) The notice or subsequent reporting 

is inaccurate; or 

(C) The notice filer fails to submit 

required reports. 

(4) Application requirements. A third 

party, or an insured depository 

institution on behalf of a third party, 

may submit an application to the FDIC 

seeking a primary purpose exception for 

business relationships not designated in 

§ 337.6(a)(5)(v)(I)(1) of this chapter. 

(i) For applications for primary 

purpose exception to enable 

transactions with fees, interest, or other 

remuneration provided to the depositor. 

Applicants that seek the primary 

purpose exception where customer 

funds that are placed at depository 

institutions are placed into transaction 

accounts, and fees, interest, or other 

remuneration are provided to the 

depositor, must include the following 

information, with respect to the 

particular business line: 

(A) Contractual evidence on the 

amount of interest, fees, or other 

remuneration, being paid on customer 

accounts; 

(B) Any marketing materials provided 

by the third party to insured depository 

institutions or its customers; 

(C) The average number of 

transactions for all customer accounts, 

and an explanation of how its customers 

utilize its services for the purpose of 

making payments and not for the receipt 

of a deposit placement service or 

deposit insurance; 

(D) The percentage of customer funds 

placed in deposit accounts that are not 

transaction accounts; 

(E) A description of any additional 

third parties that provide assistance 

with the placement of deposits at 

insured depository institutions; and 

(F) Any other information that the 

FDIC requires to initiate its review and 

render the application complete. 

(ii) For applications for primary 

purpose exception not covered by 

paragraph (b)(4)(i) of this section. 

Applicants that seek the primary 

purpose exception, other than 

applications under paragraph (b)(4)(i) of 

this section, must include, to the extent 

applicable: 

(A) A description of the deposit 

placement arrangements between the 

third party and insured depository 

institutions for the particular business 

line, including the services provided by 

any relevant third parties; 

(B) A description of the particular 

business line; 

(C) A description of the primary 

purpose of the particular business line; 

(D) The total amount of customer 

assets under management by the third 

party, with respect to the particular 

business line; 

(E) The total amount of deposits 

placed by the third party at all insured 

depository institutions, including the 

amounts placed with the applicant, if 

the applicant is an insured depository 

institution, with respect to the 

particular business line. This includes 

the total amount of term deposits and 

transactional deposits placed by the 

third party, but should be exclusive of 

the amount of brokered CDs, as defined 


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in § 337.6(a)(5)(v)(I)(3) of this chapter, 

being placed by that third party; 

(F) Revenue generated from the third 

party’s activities related to the 

placement, or facilitating the placement, 

of deposits, with respect to the 

particular business line; 

(G) Revenue generated from the third 

party’s activities not related to the 

placement, or facilitating the placement, 

of deposits, with respect to the 

particular business line; 

(H) A description of the marketing 

activities provided by the third party, 

with respect to the particular business 

line; 

(I) The reasons the third party meets 

the primary purpose exception; 

(J) Any other information the 

applicant deems relevant; and 

(K) Any other information that the 

FDIC requires to initiate its review and 

render the application complete. 

(iii) Additional information for 

applications. The FDIC may request 

additional information from the 

applicant at any time during processing 

of the application. 

(iv) Application timing. (A) An 

applicant that submits a complete 

application under this section will 

receive a written determination by the 

FDIC within 120 days of receipt of a 

complete application. 

(B) If an application is submitted that 

is not complete, the FDIC will, within 

45 days of submission, notify the 

applicant and explain what is needed to 

render the application complete. 

(C) The FDIC may extend the 120-day 

timeframe, if necessary, to complete its 

review of a complete application, with 

notice to the applicant, for a maximum 

of 120 additional days. 

(v) Application approvals. The FDIC 

will approve an application— 

(A) Submitted under paragraph 

(b)(4)(i) of this section if the FDIC finds 

that the third party’s marketing 

materials indicate that the primary 

purpose of placing customer deposits at 

insured depository institutions is to 

enable transactions, and: 

(1) Nominal interest, fees, or other 

remuneration is being paid on any 

customer accounts, or 

(2) The third party’s customers make, 

on average, more than 6 transactions a 

month. 

(B) Submitted under paragraph 

(b)(4)(ii) of this section if the FDIC finds 

that the applicant demonstrates that, 

with respect to the particular business 

line under which the third party places 

or facilitates the placement of deposits, 

the primary purpose of the third party’s 

business relationship with its customers 

is a purpose other than the placement or 

facilitation of the placement of deposits. 

(vi) Ongoing reporting for 

applications. (A) The FDIC will describe 

any reporting requirements, if 

applicable, as part of its written 

approval for a primary purpose 

exception. 

(B) Applicants that receive a written 

approval for the primary purpose 

exception, shall provide reporting to the 

FDIC and, in the case of an insured 

depository institution, to its primary 

Federal regulator, if required under this 

section. 

(vii) Requesting additional 

information, requiring re-application, 

imposing additional conditions, and 

withdrawing approvals. At any time 

after approval of an application for the 

primary purpose exception, the FDIC 

may at its discretion, with written 

notice and adequate justification: 

(A) Require additional information 

from an applicant to ensure that the 

approval is still appropriate, or for 

purposes of verifying the accuracy and 

correctness of the information provided 

to an insured depository institution or 

submitted to the FDIC as part of the 

application under this section; 

(B) Require the applicant to reapply 

for approval; 

(C) Impose additional conditions on 

an approval; or 

(D) Withdraw an approval. 

PART 337—UNSAFE AND UNSOUND 

BANKING PRACTICES 

■ 3. The authority for 12 CFR part 337 

continues to read: 

Authority: 12 U.S.C. 375a(4), 375b, 

1463(a)(1),1816, 1818(a), 1818(b), 1819, 

1820(d), 1828(j)(2), 1831, 1831f, 5412.4. 

■ 4. Amend § 337.6 by: 

■ a. Revising paragraphs (a) 

introductory text, (a)(3)(i) through (iii), 

and (a)(5)(i); 

■ b. Redesignating paragraphs (a)(5)(ii) 

and (iii) as paragraphs (a)(5)(v) and (vi); 

■ c. Adding new paragraphs (a)(5)(ii) 

and (iii) and paragraph (a)(5)(iv); 

■ d. Revising newly redesignated 

paragraphs (a)(5)(v)(I) and (a)(5)(vi); 

■ e. Removing paragraphs (b)(2)(ii) and 

(b)(3)(ii); 

■ f. Redesignating paragraphs (b)(2)(i) 

and (b)(3)(i) as paragraphs (b)(2) and (3), 

respectively; 

■ g. Adding paragraph (b)(4); and 

■ h. Removing paragraph (f). 

The revisions and additions read as 

follows: 

§ 337.6 Brokered deposits. 

(a) Definitions. For the purposes of 

§§ 337.6 and 337.7, the following 

definitions apply: 

* * * * * 

(3) * * * 

(i) For purposes of section 29 of the 

Federal Deposit Insurance Act, this 

section and § 337.7, the terms well 

capitalized, adequately capitalized, and 

undercapitalized,11 shall have the same 

meaning as to each insured depository 

institution as provided under 

regulations implementing section 38 of 

the Federal Deposit Insurance Act 

issued by the appropriate federal 

banking agency for that institution.12

(ii) If the appropriate federal banking 

agency reclassifies a well-capitalized 

insured depository institution as 

adequately capitalized pursuant to 

section 38 of the Federal Deposit 

Insurance Act, the institution so 

reclassified shall be subject to the 

provisions applicable to such lower 

capital category under this section and 

§ 337.7. 

(iii) An insured depository institution 

shall be deemed to be within a given 

capital category for purposes of this 

section and § 337.7 as of the date the 

institution is notified of, or is deemed 

to have notice of, its capital category, 

under regulations implementing section 

38 of the Federal Deposit Insurance Act 

issued by the appropriate federal 

banking agency for that institution. 

* * * * * 

(5) * * * 

(i) The term deposit broker means: 

(A) Any person engaged in the 

business of placing deposits of third 

parties with insured depository 

institutions; 

(B) Any person engaged in the 

business of facilitating the placement of 

deposits of third parties with insured 

depository institutions; 

(C) Any person engaged in the 

business of placing deposits with 

insured depository institutions for the 

purpose of selling those deposits or 

interests in those deposits to third 

parties; and 

(D) An agent or trustee who 

establishes a deposit account to 

facilitate a business arrangement with 

an insured depository institution to use 

the proceeds of the account to fund a 

prearranged loan. 

(ii) Engaged in the business of placing 

deposits. A person is engaged in the 

business of placing deposits of third 

parties if that person receives third 

party funds and deposits those funds at 

more than one insured depository 

institution. 

(iii) Engaged in the business of 

facilitating the placement of deposits. A 

person is engaged in the business of 

facilitating the placement of deposits of 

third parties with insured depository 

institutions, by, while engaged in 

business, with respect to deposits 


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placed at more than one insured 

depository institution, engaging in one 

or more of the following activities: 

(A) The person has legal authority, 

contractual or otherwise, to close the 

account or move the third party’s funds 

to another insured depository 

institution; 

(B) The person is involved in 

negotiating or setting rates, fees, terms, 

or conditions for the deposit account; or 

(C) The person engages in 

matchmaking activities. 

(1) A person is engaged in 

matchmaking activities if the person 

proposes deposit allocations at, or 

between, more than one bank based 

upon both the particular deposit 

objectives of a specific depositor or 

depositor’s agent, and the particular 

deposit objectives of specific banks, 

except in the case of deposits placed by 

a depositor’s agent with a bank affiliated 

with the depositor’s agent. A proposed 

deposit allocation is based on the 

particular objectives of: 

(i) A depositor or depositor’s agent 

when the person has access to specific 

financial information of the depositor or 

depositor’s agent and the proposed 

deposit allocation is based upon such 

information; and 

(ii) A bank when the person has 

access to the target deposit-balance 

objectives of specific banks and the 

proposed deposit allocation is based 

upon such information. 

(2) Anti-evasion. Any attempt by a 

person to structure a deposit placement 

arrangement in a way that evades 

meeting the matchmaking definition in 

this section, while still playing an 

ongoing role in providing any function 

related to matchmaking may, upon a 

finding by and with written notice from 

the FDIC, result in the person meeting 

the matchmaking definition. 

(iv) Engaged in the business—A 

person is engaged in the business of 

placing, or facilitating the placement of, 

deposits as described in paragraph 

(a)(5)(ii) or (iii) of this section, 

respectively, when that person has a 

business relationship with third parties, 

and as part of that relationship, places, 

or facilitates the placement of, deposits 

with insured depository institutions on 

behalf of the third parties. 

(v) * * * 

(I) An agent or nominee whose 

primary purpose is not the placement of 

funds with depository institutions; or 

(1) Designated business exceptions 

that meet the primary purpose 

exception. Business relationships are 

designated as meeting the primary 

purpose exception, subject to 

§ 303.243(b)(3) of this chapter, where, 

with respect to a particular business 

line: 

(i) Less than 25 percent of the total 

assets that the agent or nominee has 

under administration for its customers 

is placed at depository institutions; 

(ii) 100 percent of depositors’ funds 

that the agent or nominee places, or 

assists in placing, at depository 

institutions are placed into transactional 

accounts that do not pay any fees, 

interest, or other remuneration to the 

depositor; 

(iii) A property management firm 

places, or assists in placing, customer 

funds into deposit accounts for the 

primary purpose of providing property 

management services; 

(iv) The agent or nominee places, or 

assists in placing, customer funds into 

deposit accounts for the primary 

purpose of providing cross-border 

clearing services to its customers; 

(v) The agent or nominee places, or 

assists in placing, customer funds into 

deposit accounts for the primary 

purpose of providing mortgage 

servicing; 

(vi) A title company places, or assists 

in placing, customer funds into deposit 

accounts for the primary purpose of 

facilitating real estate transactions; 

(vii) A qualified intermediary places, 

or assists in placing, customer funds 

into deposit accounts for the primary 

purpose of facilitating exchanges of 

properties under section 1031 of the 

Internal Revenue Code; 

(viii) A broker dealer or futures 

commission merchant places, or assists 

in placing, customer funds into deposit 

accounts in compliance with 17 CFR 

240.15c3–3(e) or 17 CFR 1.20(a); 

(ix) The agent or nominee places, or 

assists in placing, customer funds into 

deposit accounts for the primary 

purpose of posting collateral for 

customers to secure credit-card loans; 

(x) The agent or nominee places, or 

assists in placing, customer funds into 

deposit accounts for the primary 

purpose of paying for or reimbursing 

qualified medical expenses under 

section 223 of the Internal Revenue 

Code; 

(xi) The agent or nominee places, or 

assists in placing, customer funds into 

deposit accounts for the primary 

purpose of investing in qualified tuition 

programs under section 529 of the 

Internal Revenue Code; 

(xii) The agent or nominee places, or 

assists in placing, customer funds into 

deposit accounts to enable participation 

in the following tax-advantaged 

programs: Individual retirement 

accounts under section 408(a) of the 

Internal Revenue Code, Simple 

individual retirement accounts under 

section 408(p) of the Internal Revenue 

Code, or Roth individual retirement 

accounts under section 408A of the 

Internal Revenue Code; 

(xiii) A Federal, State, or local agency 

places, or assists in placing, customer 

funds into deposit accounts to deliver 

funds to the beneficiaries of government 

programs; and 

(xiv) The agent or nominee places, or 

assists in placing, customer funds into 

deposit accounts pursuant to such other 

relationships as the FDIC specifically 

identifies as a designated business 

relationship that meets the primary 

purpose exception. 

(2) Approval required for business 

relationships not designated in 

paragraph (a)(5)(v)(I)(1). An agent or 

nominee that does not rely on a 

designated business exception described 

in this section must receive an approval 

under the application process in 

§ 303.243(b) of this chapter in order to 

qualify for the primary purpose 

exception. 

(3) Brokered CD placements not 

eligible for primary purpose exception. 

An agent’s or nominee’s placement of 

brokered certificates of deposit as 

described in 12 U.S.C. 1831f(g)(1)(A) 

shall be considered a discrete and 

independent business line from other 

deposit placement businesses in which 

the agent or nominee may be engaged. 

(4) Brokered CD means a deposit 

placement arrangement in which a 

master certificate of deposit is issued by 

an insured depository institution in the 

name of the third party that has 

organized the funding of the certificate 

of deposit, or in the name of a custodian 

or a sub-custodian of the third party, 

and the certificate is funded by 

individual investors through the third 

party, with each individual investor 

receiving an ownership interest in the 

certificate of deposit, or a similar 

deposit placement arrangement that the 

FDIC determines is arranged for a 

similar purpose. 

(vi) Notwithstanding paragraph 

(a)(5)(v) of this section, the term deposit 

broker includes any insured depository 

institution that is not well-capitalized, 

and any employee of any such insured 

depository institution, which engages, 

directly or indirectly, in the solicitation 

of deposits by offering rates of interest 

(with respect to such deposits) which 

are significantly higher than the 

prevailing rates of interest on deposits 

offered by other insured depository 

institutions in such depository 

institution’s normal market area. 

* * * * * 

(b) * * * 

(4) Acceptance of nonmaturity 

brokered deposits. (i) A nonmaturity 


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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 6791 

brokered deposit is accepted by an 

institution that is less than well 

capitalized— 

(A) At the time a new nonmaturity 

account is opened by or through any 

deposit broker; or 

(B) In the case of an existing 

nonmaturity brokered account, or 

accounts, that had been opened by or 

through a particular deposit broker: 

(1) When the aggregate account 

balance increases above the amount(s) 

in the account(s) at the time the 

institution falls to adequately 

capitalized; or, 

(2) For agency or nominee accounts, 

when funds for a new depositor are 

credited to the nonmaturity account or 

accounts. 

* * * * * 

■ 5. Add § 337.7 to read as follows: 

§ 337.7 Interest rate restrictions. 

(a) Definitions—(1) National rate. The 

weighted average of rates paid by all 

insured depository institutions and 

credit unions on a given deposit 

product, for which data are available, 

where the weights are each institution’s 

market share of domestic deposits. 

(2) National rate cap. The higher of: 

(i) National rate plus 75 basis points, 

or 

(ii) 120 percent of the current yield on 

similar maturity U.S. Treasury 

obligations plus 75 basis points or, in 

the case of any nonmaturity deposit, the 

federal funds rate plus 75 basis points. 

(3) Local market rate cap. Ninety (90) 

percent of the highest interest rate paid 

on a particular deposit product in the 

institution’s local market area. An 

institution’s local market rate cap shall 

be based upon the rate offered on a 

particular product type and maturity 

period by an insured depository 

institution or credit union that is 

accepting deposits at a physical location 

within the institution’s local market 

area. 

(4) Local market area. An institution’s 

local market area is any readily defined 

geographical market area in which the 

insured depository institution accepts or 

solicits deposits, which may include the 

State, county or metropolitan statistical 

area, in which the insured depository 

institution accepts or solicits deposits. 

(5) On-tenor and off-tenor maturities. 

On-tenor maturities include the 

following term periods: 1-month, 3- 

months, 6-months, 12-months, 24- 

months, 36-months, 48-months, and 60- 

months. All other term periods are 

considered off-tenor maturities for 

purposes of this section. 

(b) Computation and publication of 

national rate cap—(1) Computation. 

The Corporation will compute the 

national rate cap for different deposit 

products and maturities, as determined 

by the Corporation based on available 

and reported data. 

(2) Publication. The Corporation will 

publish the national rate cap monthly, 

but reserves the discretion to publish 

more or less frequently, if needed, on 

the Corporation’s website. Except as 

provided in paragraph (f) of this section, 

for institutions that are less than well 

capitalized at the time of publication, a 

national rate cap that is lower than the 

previously published national rate cap 

will take effect 3 days after publication. 

The previously published national rate 

cap will remain in effect during this 3- 

day period. 

(c) Application—(1) Well-capitalized 

institutions. A well-capitalized 

institution may pay interest without 

restriction by this section. 

(2) Institutions that are not well 

capitalized. An institution that is not 

well capitalized may not: Solicit 

deposits by offering a rate of interest 

that exceeds the applicable rate cap; or, 

where an institution has accepted 

brokered deposits pursuant to a waiver 

described in § 337.6(c), pay a rate of 

interest that, at the time such deposit is 

accepted, exceeds the applicable rate 

cap. For purposes of this section, the 

applicable rate cap is the national rate 

cap or, if the institution has provided 

the notice and evidence described in 

subsection (d) of this section, the local 

market rate cap for deposits gathered in 

the institution’s local market area. If an 

institution gathers deposits from more 

than one local area, it may seek to pay 

a rate of interest up to its local market 

rate cap for deposits gathered in each 

respective local market area. 

(d) Notice related to local market rate 

cap applicability. An insured depository 

institution that seeks to pay a rate of 

interest up to its local market rate cap 

shall provide notice and evidence of the 

highest rate paid on a particular deposit 

product in the institution’s local market 

area to the appropriate FDIC regional 

director. The institution shall update its 

evidence and calculations for existing 

and new accounts monthly unless 

otherwise instructed by the appropriate 

FDIC regional director, and retain such 

information available for at least the two 

most recent examination cycles and, 

upon the FDIC’s request, provide the 

documentation to the appropriate FDIC 

regional office and to examination staff 

during any subsequent examinations. 

(e) Offering products with off-tenor 

maturities. If an institution seeks to offer 

a product with an off-tenor maturity for 

which the FDIC does not publish the 

national rate cap or that is not offered 

by another institution within its local 

market area, then the institution will be 

required to use the rate offered on the 

next lower on-tenor maturity for that 

product when determining its 

applicable national or local rate cap, 

respectively. For example, an institution 

seeking to offer a 26-month certificate of 

deposit must use the rate offered for a 

24-month certificate of deposit to 

determine the institution’s applicable 

national or local rate cap. There is no 

off-tenor maturity for nonmaturity 

products such as an interest checking 

account, savings account, or money 

market deposit account. 

(f) Discretion to delay effect of 

published national rate cap. In the 

event of a substantial decrease in the 

published national rate cap from one 

month to the next, the Corporation may, 

in its discretion, delay the date on 

which the published national rate cap 

takes effect. The previously published 

national rate cap will remain in effect 

until the effective date, as determined 

by the Corporation, of the subsequent 

published national rate cap. 

(g) Treatment of nonmaturity deposits 

for purposes of this section. For 

purposes of this section, the following 

definitions apply. 

(1) Solicitation of nonmaturity 

deposits. (i) An institution solicits a 

nonmaturity deposit when— 

(A) A nonmaturity account is opened; 

(B) The institution raises the rate 

being paid on a nonmaturity account 

existing at the time when the institution 

was last well capitalized; or, 

(C) Funds for a new depositor are 

credited to a nonmaturity account 

existing at the time when the institution 

was last well capitalized. 

(2) Acceptance of nonmaturity 

brokered deposits subject to a waiver. A 

less than well capitalized institution 

that accepts nonmaturity brokered 

deposits subject to waiver, with respect 

to a particular deposit broker, may not 

pay interest in excess of the applicable 

rate cap on: 

(i) Any new nonmaturity accounts 

opened by or through that particular 

deposit broker; 

(ii) An amount of funds that exceeds 

the amount(s) in the account(s) that, at 

the time the institution fell to less than 

well capitalized, had been opened by or 

through the particular deposit broker; or 


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6792 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations 

(iii) For agency or nominee accounts, 

any funds for a new depositor credited 

to a nonmaturity account or accounts. 

Federal Deposit Insurance Corporation. 

By order of the Board of Directors. 

Dated at Washington, DC, on December 15, 

2020. 

James P. Sheesley, 

Assistant Executive Secretary. 

[FR Doc. 2020–28196 Filed 1–21–21; 8:45 am] 

BILLING CODE 6714–01–P 


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