89–006 

115TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 115–1096 

BROKERED DEPOSIT AFFILIATE-SUBSIDIARY 

MODERNIZATION ACT OF 2018 

DECEMBER 21, 2018.—Committed to the Committee of the Whole House on the State 

of the Union and ordered to be printed 

Mr. HENSARLING, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

together with 

MINORITY VIEWS 

[To accompany H.R. 6158] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 6158) to amend the Federal Deposit Insurance Act to exclude affiliates and subsidiaries of insured depository institutions 

in the definition of deposit broker, and for other purposes, having 

considered the same, report favorably thereon without amendment 

and recommend that the bill do pass. 

PURPOSE AND SUMMARY

Introduced by Representative Scott Tipton on June 20, 2018, 

H.R. 6158, the ‘‘Brokered Deposit Affiliate-Subsidiary Modernization Act of 2018’’ amends the Federal Deposit Insurance Act (12 

U.S.C. 1831f) (FDIA) to exempt funds collected through an insured 

depository institution’s affiliate or subsidiary from the definition of 

‘‘deposit broker.’’ 

2 

1Deposit brokers provide intermediary services for banks and investors, with each deposit 

broker operating under their own guidelines for obtaining deposits. 2 12 U.S.C. § 1831f(g)(1). 

3 Core deposits are defined in the Uniform Bank Performance Report to include demand deposits, all Negotiable Order of Withdrawal (NOW) accounts, automatic transfer service (ATS) 

accounts, money market deposit accounts (MMDAs) other savings deposits, and time deposits 

under $250,000. 4See FDIC, ‘‘Guidance on Identifying, Accepting, and Reporting Brokered Deposits Frequently 

Asked Questions.’’ (Dec. 2014). Available at https://www.fdic.gov/news/news/financial/2015/ 

fil15002a.pdf. 

5https://www.americanbanker.com/opinion/uncertainty-chilling-broker-dealer-sweep-depositmarket. 

BACKGROUND AND NEED FOR LEGISLATION

Congress adopted the definition of ‘‘deposit broker’’ 1 in 1989 2

with the passage and enactment of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) [P.L. 101–73]. Congress later adopted in 1991 additional limitations on brokered deposits. Both provisions were included in legislation to address the 

savings and loan crisis and neither provision has been revised since 

they were adopted. The legislation was intended to limit the ability 

of weak depository institutions to use brokered deposits to grow 

rapidly, though there were conflicting views on the need for it. Brokered deposits are considered higher risks as the deposits have a 

higher probability of being withdrawn at short notice than core deposits 3 because investors are seeking short-term, high interest rate 

investment opportunities, which some view as an artificial increase 

in an institution’s capital. Consequently, banks holding brokered 

deposits are required to have additional safeguards and are assessed higher deposit-insurance premiums as a result. 

Through the Federal Deposit Insurance Corporation’s (FDIC) 

staff interpretations, the FDIC has traditionally given the broadest 

possible reading to the definition of ‘‘deposit broker’’ and the narrowest possible reading to various statutory exemptions.4 The staff 

interpretations do not reflect changes to the law, technology, and 

the marketplace over the past 25 years. 

TECHNOLOGICAL DEVELOPMENTS IN FINANCIAL SERVICES

There have been significant advancements in financial services 

industry technology since the adoption of the ‘‘deposit broker’’ definition. The introduction of online banking and mobile payment 

products have dramatically changed the manner and geographical 

territories in which banks generate deposits and interact with their 

customers. Some banks have an online-only presence or fintechtype subsidiaries that offer deposit accounts to consumers and 

small businesses. New brokered deposit products, as well, have entered the market. One such product is the deposit account ‘‘sweep’’ 

program offered by many securities brokers. These sweep programs, which frequently include a transfer of excess customer cash 

balances to the securities broker’s affiliated bank, currently account for more than $1 trillion of deposits in the banking system.5

A sweep program transfers the excess cash balances into either an 

uninsured money market fund or an FDIC insured bank deposit to 

provide additional yield and insurance coverage on those funds. 

The FDIC has acknowledged in both its 2011 Study on Core and 

3 

6Federal Deposit Insurance Corporation, ‘‘Study on Core Deposits and Brokered Deposits’’ 

(July, 2011). Available at https://www.fdic.gov/regulations/reform/coredeposit-study.pdf. 7https://www.fdic.gov/regulations/laws/rules/2000-5300.html. 

8FDIC, supra note 7, at 55. 

Brokered Deposits 6 and the Liquidity Coverage Ratio 7 regulations 

that deposits received by a bank through an affiliated broker’s 

sweep program are more stable than other types of deposits at 

banks. According to the FDIC’s study on brokered deposits: 

In all, sweep deposits from affiliates appear to pose 

fewer problems compared to brokered deposits in general. 

These deposits would not appear to foster growth other 

than during an initial growth period, are not rate responsive (although they may be responsive to other investment 

opportunities) and may not leave when a bank is under 

stress. 8

During the financial crisis data also shows that banks saw a net 

inflow of sweep deposits from brokerage customers as they derisked out of securities holdings. This counter-cyclical effect increased, rather than decreased, stability for these banks in a time 

of uncertainty. Despite these findings, the FDIC has consistently 

treated deposits from sweep programs as brokered deposits. The 

Brokered Deposit Affiliate-Subsidiary Modernization Act addresses 

this issue by exempting funds collected through an affiliate or subsidiary, including employees of an affiliate or subsidiary, from the 

definition of ‘‘deposit broker.’’ This change recognizes that customers of a bank’s affiliates view themselves as having a relationship with the entire firm and acknowledges the stability of deposits 

that originate from customers of a bank’s subsidiary or other affiliate. 

HEARINGS

The Subcommittee on Financial Institutions held a hearing examining matters relating to H.R. 6158 on September 27, 2016. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

September 13, 2018, and ordered H.R. 6158 to be reported favorably to the House without amendment by a recorded vote of 34 

yeas to 17 nays (recorded vote no. FC–211), a quorum being 

present. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. An amendment offered by Ranking Member Waters was not agreed to by a recorded 

vote of 20 yeas to 31 nays (Record vote no. FC–210). A motion by 

Chairman Hensarling to report the bill favorably to the House 

without amendment was agreed to by a recorded vote of 34 yeas 

to 17 nays (Record vote no. FC–211), a quorum being present. 

4 


Insert offset folio 5 here HR1096.001

Mr. Hensarling .............. . 

Mr. McHenry ................ .. 

Mr. King .................... .. 

Mr. Royce (CA) ............... . 

Mr. Lucas 

Mr. Pearce ................... . 

Mr. PoseY .................... . 

Mr. Luetkemeyer ............ .. 

Mr. Huizenga 

Mr. DuffY .................... . 

Mr Sttvers .................. . 

Mr. Hultgren ................. . 

Mr Ross .................... . 

Mr. Pittenger ............... .. 

Mrs. Wagner----·------------· 

Mr. Barr ..................... . 

Mr. Rothfus 

Mr. Messer __________________ _ 

Mr. Tipton------·-----·-·-----

Mr. Williams ................. . 

Mr. Poliquin ................. . 

Mrs. Love .................... . 

Mr. Hill 

Mr. Emmer .................. . 

Mr. Zeldin 

Mr. Trott ____________________ _ 

Mr. Loudermilk ______________ _ 

Mr. Mooney rNVL __________ _ 

Mr. MacArthur ............... . 

Mr. Davidson ................ . 

Mr. Budd 

Mr. Kustoff (TNL ___________ _ 

Ms.lenney .................. . 

Mr. Hollingsworth ____________ _ 

Ms. Maxine Waters (CA) 

Mrs. Carolyn B. Maloney {NYL 

Ms. Velazquez ............ . 

Mr. Sherman----·--·---------

Mr. Meeks 

Mr. Capuano ................ . 

Mr. Clay ____________________ __ 

Mr. Lynch------------·-------

Mr. David Scott (GA) 

Mr. AI Green (TX) ........... .. 

Mr Cleaver---·---------------

Ms. Moore ................... . 

Mr. Ellison------·--·-·-------· 

Mr. Perlmutter---------------· 

Mr. Himes ___________________ _ 

Mr. Foster------------------·-

Mr Ktldee ................... . 

Mr. Delaney ................ .. 

Ms Smema ....... _ _ __ __ 

Mrs. Beatty------·-----------· 

Mr. Heck .................... . 

Mr. Vargas 

Mr. Gottheimer ______________ _ 

Mr. Gonzalez (TX) 

Mr. Crist __________ __ 

Mr. Kihuen 
5 


Insert offset folio 6 here HR1096.002

Representative 

Mr. Hensarling _____________ __ 

Mr. McHenry ................. . 

Mr. King----------------------

Mr. Royce (CAl .............. .. 

Mr Lucas ___________________ _ 

Mr. Pearce .................. . 

Mr. Posey .................... . 

Mr. Luetkemeyer _______ .. ___ .. 

Mr. Huizenga ______________ __ 

Mr. Duffy .................... . 

Mr Strvers .................. . 

Mr. Hultgren ................ .. 

Mr Ross ................... .. 

Mr. Pittenger ................ . 

Mrs. Wagner ................. . 

Mr. Barr .................... .. 

Mr. Rothfus ................ .. 

Mr Messer _____________ ..... 

Mr. Tipton ................... . 

Mr. Williams ................ .. 

Mr. Poliquin ................ .. 

Mrs Love ................. __ 

Mr. Hill ..................... .. 

Mr Emmer ................. .. 

Mr. Zeldin .................. .. 

Mr Trott .................... . 

Mr. Loudermilk ............. .. 

Mr. Mooney rNVL .......... . 

Mr. MacArthur ............... . 

Mr Davrdson ................ . 

Mr Budd ................... .. 

Mr. Kustoff (TNL. ______ ..... . 

Ms. Tenney .................. . 

Mr. ~olllncr"'''"'th 

Record vote no. FC-211 

Yea Nay Present Representative 

Ms. Maxine Waters (CA) __ ... __ 

Mrs. Carolyn B. Maloney (NY)__ 

Ms. Velazquez ............... . 

Mr Sherman ............... .. 

Mr Meeks ................... . 

Mr. Capuano ............... .. 

Mr. Clay .................... .. 

Mr. Lynch ................... . 

Mr. David Scott (GA) ........ .. 

Mr. AI Green (TX) .. _ ........ .. 

Mr Cleaver ................. . 

Ms. Moore 

Mr Ellrson ................. . 

Mr Perlmutter .............. .. 

Mr Hrmes .................. .. 

Mr. Foster ................... . 

Mr Krldee ................... . 

Mr. Delaney ................ .. 

Ms. Sinema ................. . 

Mrs. Beatty .................. . 

Mr Heck _____ ....... ____ _ 

Mr. Vargas _________________ __ 

Mr. Gottheimer ............. .. 

Mr. Gonzalez (TX) ............ . 

Mr Cnst .............. _ .. . 

Mr K1huen __________________ _ 

Yea Nay 

)\ 

)\ 

)\ 

)\ 

)\ 

)\ 

)\ 

)\ 

)\ 

Present 
6 

COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the findings and recommendations of the Committee based on oversight activities under clause 2(b)(1) of rule X 

of the Rules of the House of Representatives, are incorporated in 

the descriptive portions of this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee states that H.R. 6158 will exempt funds collected through an insured depository institution’s affiliate or subsidiary from the definition of ‘‘deposit broker.’’ 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATES

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, December 20, 2018. 

Hon. JEB HENSARLING, 

Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 6158, the Brokered Deposit Affiliate-Subsidiary Modernization Act of 2018. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Sarah Puro. 

Sincerely, 

KEITH HALL, Director. 

Enclosure. 

H.R. 6158—Brokered Deposit Affiliate-Subsidiary Modernization 

Act of 2018 

Summary: H.R. 6158 would amend the definition of brokered deposits, which banks typically receive from financial brokers or 

other banks rather than directly from customers. Those deposits 

are used by the Federal Deposit Insurance Corporation (FDIC) to 

calculate its assessments of deposit insurance for banks with assets 

over $10 billion. CBO estimates that enacting the bill would reduce 

the collection of those assessments, which are classified as offsetVerDate Sep 11 2014 21:16 Jan 02, 2019 Jkt 089006 PO 00000 Frm 00006 Fmt 6659 Sfmt 6602 E:\HR\OC\HR1096.XXX HR1096
7 

ting receipts. A reduction in offsetting receipts has the effect of increasing direct spending; CBO estimates those increases in direct 

spending would total $1.5 billion over the 2019–2028 period. 

Because enacting the bill would affect direct spending, pay-asyou-go procedures apply. The bill would not affect revenues. 

CBO estimates that enacting H.R. 6158 would not increase net direct spending or on-budget deficits by more than $5 billion in any 

of the four consecutive 10-year periods beginning in 2029. 

H.R. 6158 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA). 

Estimated cost to the Federal Government: The estimated budgetary effect of H.R. 6158 is shown in the following table. The costs 

of the legislation fall within budget function 370 (commerce and 

housing credit). 

By fiscal year, in millions of dollars— 

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2019– 

2023 

2019– 

2028 

INCREASES IN DIRECT SPENDING 

Estimated Budget Authority 0 100 125 150 175 175 175 200 200 200 550 1,500 

Estimated Outlays ............. 0 100 125 150 175 175 175 200 200 200 550 1,500 

Basis of estimate: H.R. 6158 would change the amount of receipts collected by the FDIC for deposit insurance by expanding the 

definition of who is exempt from treatment as a deposit broker and 

who is considered an employee of a bank under the law. For deposits at institutions with assets over $10 billion the FDIC currently 

charges an assessment of between zero and 10 basis points for brokered deposits that exceed 10 percent of domestic deposits; those 

charges are on top of the base assessment rate of 3 to 30 basis 

points. Thus, the bill would affect how much banks with assets of 

over $10 billion pay to the FDIC for deposit insurance. 

Under current law, only people who are directly employed by an 

insured depository institution and are paid a salary by the institution are exempt from being considered deposit brokers. (Deposit 

brokers are people who place brokered deposits at banks.) Under 

H.R. 6158, the definition of an employee would expand to include 

any person who receives compensation in any form from the insured depository institution or its affiliates—usually a brokerage 

house connected under a corporate umbrella. Under that definition 

people who are not directly employed by either banks or their affiliates also could be considered employees, and thus would be exempt 

from treatment as a deposit broker. 

The magnitude of budgetary effects would depend on how financial institutions react to the new definition of an employee. CBO 

expects that the broader definition in the bill would reduce assessments paid by banks to the extent that they change their organization or compensation to take advantage of the new definition. Some 

banks may choose not to change their corporate structure or employee compensation methods because they may prefer their current organization and methods or because deposit insurance assessments represent a small part of their annual costs. Other banks 

have expressed a desire to have more deposits from people who are 

currently considered deposit brokers but who would be exempt 

from the definition under the bill. H.R. 6158 would provide a financial incentive for banks to change how brokered deposits are hanVerDate Sep 11 2014 21:16 Jan 02, 2019 Jkt 089006 PO 00000 Frm 00007 Fmt 6659 Sfmt 6602 E:\HR\OC\HR1096.XXX HR1096
8 

dled, but CBO expects that the probability that banks with brokered deposits would adjust their business models to reduce the 

FDIC assessments would equal 50 percent. 

Using information from the FDIC, CBO estimates that in 2018 banks paid about $250 million in assessments based on their level 

of brokered deposits. Using the growth rate for assessments incorporated in CBOs April 2018 baseline estimates for the FDIC, CBO 

expects that those assessments will grow to about $400 million per 

year by 2028 and would total about $3 billion over the 2020–2028 

period. (CBO expects any changes would affect receipts beginning 

in 2020.) As a result, CBO estimates that assessments would decrease by an average of $150 million per year over the 2019–2028 

period and that implementing the bill would increase direct spending by $1.5 billion over that period. 

Uncertainty: CBO aims to produce cost estimates that generally 

reflect the middle of the range of the most likely budgetary outcomes that would result if the legislation was enacted. For this estimate, spending could be higher or lower because: • Banks could choose to change their employment or compensation arrangements for brokered deposits for reasons that 

are unrelated to deposit insurance assessments and those 

changes would affect the amount of assessments they pay. • The FDIC also could interpret the legislative language 

more broadly or more narrowly than CBO did, which would 

change the level of brokered deposits affected by the legislation, the types of compensation and employment relationships 

that are exempt from the brokered deposits definition, and 

thus the amount of assessments paid under the bill. 

Pay-As-You-Go considerations: The Statutory Pay-As-You-Go Act 

of 2010 establishes budget-reporting and enforcement procedures 

for legislation affecting direct spending or revenues. The net 

changes in outlays that are subject to those pay-as-you-go procedures are shown in the following table. 

CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 6158, THE BROKERED DEPOSIT AFFILIATESUBSIDIARY MODERNIZATION ACT OF 2018, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON FINANCIAL SERVICES ON SEPTEMBER 13, 2018 

By fiscal year, in millions of dollars— 

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2019– 

2023 

2019– 

2028 

NET INCREASE IN THE DEFICIT 

Statutory Pay-As-You-Go 

Effect ............................. 0 100 125 150 175 175 175 200 200 200 550 1,500 

Increase in long-term direct spending and deficits: CBO estimates that enacting H.R. 6158 would not increase net direct spending or on-budget deficits by more than $5 billion in any of the four 

consecutive 10-year periods beginning in 2029. 

Mandates: H.R. 6158 contains no intergovernmental or privatesector mandates as defined in UMRA. 

Estimate prepared by: Federal costs: Kim Cawley; Mandates: Rachel Austin. 

Estimate reviewed by: H. Samuel Papenfuss, Deputy Assistant 

Director for Budget Analysis; Theresa A. Gullo, Assistant Director 

for Budget Analysis. 

9 

FEDERAL MANDATES STATEMENT

This information is provided in accordance with section 423 of 

the Unfunded Mandates Reform Act of 1995. 

The Committee has determined that the bill does not contain 

Federal mandates on the private sector. The Committee has determined that the bill does not impose a Federal intergovernmental 

mandate on State, local, or tribal governments. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of the section 102(b)(3) of the 

Congressional Accountability Act. 

EARMARK IDENTIFICATION

With respect to clause 9 of rule XXI of the Rules of the House 

of Representatives, the Committee has carefully reviewed the provisions of the bill and states that the provisions of the bill do not 

contain any congressional earmarks, limited tax benefits, or limited 

tariff benefits within the meaning of the rule. 

DUPLICATION OF FEDERAL PROGRAMS

In compliance with clause 3(c)(5) of rule XIII of the Rules of the 

House of Representatives, the Committee states that no provision 

of the bill establishes or reauthorizes: (1) a program of the Federal 

Government known to be duplicative of another Federal program; 

(2) a program included in any report from the Government Accountability Office to Congress pursuant to section 21 of Public 

Law 111–139; or (3) a program related to a program identified in 

the most recent Catalog of Federal Domestic Assistance, published 

pursuant to the Federal Program Information Act (Pub. L. No. 95– 

220, as amended by Pub. L. No. 98–169). 

DISCLOSURE OF DIRECTED RULEMAKING

Pursuant to section 3(i) of H. Res. 5, (115th Congress), the following statement is made concerning directed rule makings: The 

Committee estimates that the bill requires no directed rule makings within the meaning of such section. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This section cites H.R. 6158 as the ‘‘Brokered Deposit AffiliateSubsidiary Modernization Act of 2018’’ 

Section 2. Exclusion of affiliates and subsidiaries of insured depository institutions in the definition of deposit broker 

This section amends Section 29(g) of the Federal Deposit Insurance Act by updating definitions. 

10 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

and existing law in which no change is proposed is shown in 

roman): 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

and existing law in which no change is proposed is shown in 

roman): 

FEDERAL DEPOSIT INSURANCE ACT 

* * * * * * * 

SEC. 29. BROKERED DEPOSITS. 

(a) IN GENERAL.—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. 

(b) RENEWALS AND ROLLOVERS TREATED AS ACCEPTANCE OF

FUNDS.—Any renewal of an account in any troubled institution and 

any rollover of any amount on deposit in any such account shall be 

treated as an acceptance of funds by such troubled institution for 

purposes of subsection (a). 

(c) WAIVER AUTHORITY.—The Corporation may, on a case-by-case 

basis and upon application by an insured depository institution 

which is adequately capitalized (but not well capitalized), waive the 

applicability of subsection (a) upon a finding that the acceptance of 

such deposits does not constitute an unsafe or unsound practice 

with respect to such institution. 

(d) LIMITED EXCEPTION FOR CERTAIN CONSERVATORSHIPS.—In the 

case of any insured depository institution for which the Corporation 

has been appointed as conservator, subsection (a) shall not apply 

to the acceptance of deposits (described in such subsection) by such 

institution if the Corporation determines that the acceptance of 

such deposits— 

(1) is not an unsafe or unsound practice; 

(2) is necessary to enable the institution to meet the demands of its depositors or pay its obligations in the ordinary 

course of business; and 

(3) is consistent with the conservator’s fiduciary duty to minimize the institution’s losses. 

Effective 90 days after the date on which the institution was placed 

in conservatorship, the institution may not accept such deposits. 

(e) RESTRICTION ON INTEREST RATE PAID.— 

(1) DEFINITIONS.—In this subsection— 

(A) the terms ‘‘agent institution’’, ‘‘reciprocal deposits’’, 

and ‘‘well capitalized’’ have the meanings given those 

terms in subsection (i); and 

11 

(B) the term ‘‘covered insured depository institution’’ 

means an insured depository institution that— 

(i) under subsection (c) or (d), accepts funds obtained, directly or indirectly, by or through a deposit 

broker; or 

(ii) while acting as an agent institution under subsection (i), accepts reciprocal deposits while not well 

capitalized. 

(2) PROHIBITION.—A covered insured depository institution 

may not pay a rate of interest on funds or reciprocal deposits 

described in paragraph (1) that, at the time that the funds or 

reciprocal deposits are accepted, significantly exceeds the limit 

set forth in paragraph (3). 

(3) LIMIT ON INTEREST RATES.—The limit on the rate of interest referred to in paragraph (2) shall be— 

(A) the rate paid on deposits of similar maturity in the 

normal market area of the covered insured depository institution for deposits accepted in the normal market area 

of the covered insured depository institution; or 

(B) the national rate paid on deposits of comparable maturity, as established by the Corporation, for deposits accepted outside the normal market area of the covered insured depository institution. 

(f) ADDITIONAL RESTRICTIONS.—The Corporation may impose, by 

regulation or order, such additional restrictions on the acceptance 

of brokered deposits by any institution as the Corporation may determine to be appropriate. 

(g) DEFINITIONS RELATING TO DEPOSIT BROKER.— 

(1) DEPOSIT BROKER.—The term ‘‘deposit broker’’ means— 

(A) 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 

(B) 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. 

(2) EXCLUSIONS.—The term ‘‘deposit broker’’ does not include— 

(A) an insured depository institution or any affiliate or 

subsidiary of such insured depository institution, with respect to funds placed with that depository institution; 

(B) an employee of an insured depository institution or 

any affiliate or subsidiary of such insured depository institution, with respect to funds placed with the employing depository institution; 

(C) 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; 

(D) the trustee of a pension or other employee benefit 

plan, with respect to funds of the plan; 

12 

(E) 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; 

(F) the trustee of a testamentary account; 

(G) 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; 

(H) a trustee or custodian of a pension or profitsharing 

plan qualified under section 401(d) or 403(a) of the Internal Revenue Code of 1986; or 

(I) an agent or nominee whose primary purpose is not 

the placement of funds with depository institutions. 

(3) INCLUSION OF DEPOSITORY INSTITUTIONS ENGAGING IN

CERTAIN ACTIVITIES.—Notwithstanding paragraph (2), the term 

‘‘deposit broker’’ includes any insured depository institution 

that is not well capitalized (as defined in section 38), and any 

employee of such institution, 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. 

ø(4) EMPLOYEE.—For purposes of this subsection, the term 

‘‘employee’’ means any employee— 

ø(A) who is employed exclusively by the insured depository institution; 

ø(B) whose compensation is primarily in the form of a 

salary; 

ø(C) who does not share such employee’s compensation 

with a deposit broker; and 

ø(D) whose office space or place of business is used exclusively for the benefit of the insured depository institution which employs such individual.¿ 

(4) EMPLOYEE.—For purposes of this subsection, the term 

‘‘employee’’— 

(A) means an individual who receives compensation in 

any form from an insured depository institution or an affiliate or subsidiary of such insured depository institution; 

and 

(B) includes a registered representative of a broker or 

dealer that is an affiliate or subsidiary of an insured depository institution. 

(h) DEPOSIT SOLICITATION RESTRICTED.—An insured depository 

institution that is undercapitalized, as defined in section 38, shall 

not solicit deposits by offering rates of interest that are significantly higher than the prevailing rates of interest on insured deposits— 

(1) in such institution’s normal market areas; or 

(2) in the market area in which such deposits would otherwise be accepted. 

(i) LIMITED EXCEPTION FOR RECIPROCAL DEPOSITS.— (1) IN GENERAL.—Reciprocal deposits of an agent institution 

shall not be considered to be funds obtained, directly or indirectly, by or through a deposit broker to the extent that the 

13 

total amount of such reciprocal deposits does not exceed the 

lesser of— 

(A) $5,000,000,000; or 

(B) an amount equal to 20 percent of the total liabilities 

of the agent institution. 

(2) DEFINITIONS.—In this subsection: 

(A) AGENT INSTITUTION.—The term ‘‘agent institution’’ 

means an insured depository institution that places a covered deposit through a deposit placement network at other 

insured depository institutions in amounts that are less 

than or equal to the standard maximum deposit insurance 

amount, specifying the interest rate to be paid for such 

amounts, if the insured depository institution— 

(i)(I) when most recently examined under section 

10(d) was found to have a composite condition of outstanding or good; and 

(II) is well capitalized; 

(ii) has obtained a waiver pursuant to subsection (c); 

or 

(iii) does not receive an amount of reciprocal deposits that causes the total amount of reciprocal deposits 

held by the agent institution to be greater than the average of the total amount of reciprocal deposits held by 

the agent institution on the last day of each of the 4 

calendar quarters preceding the calendar quarter in 

which the agent institution was found not to have a 

composite condition of outstanding or good or was determined to be not well capitalized. 

(B) COVERED DEPOSIT.—The term ‘‘covered deposit’’ 

means a deposit that— 

(i) is submitted for placement through a deposit 

placement network by an agent institution; and 

(ii) does not consist of funds that were obtained for 

the agent institution, directly or indirectly, by or 

through a deposit broker before submission for placement through a deposit placement network. 

(C) DEPOSIT PLACEMENT NETWORK.—The term ‘‘deposit 

placement network’’ means a network in which an insured 

depository institution participates, together with other insured depository institutions, for the processing and receipt of reciprocal deposits. 

(D) NETWORK MEMBER BANK.—The term ‘‘network member bank’’ means an insured depository institution that is 

a member of a deposit placement network. 

(E) RECIPROCAL DEPOSITS.—The term ‘‘reciprocal deposits’’ means deposits received by an agent institution 

through a deposit placement network with the same maturity (if any) and in the same aggregate amount as covered 

deposits placed by the agent institution in other network 

member banks. 

(F) WELL CAPITALIZED.—The term ‘‘well capitalized’’ has 

the meaning given the term in section 38(b)(1). 

* * * * * * * 

(14) 

1For example, see William F. Kroener, III, General Counsel, FDIC, ‘‘Advisory Opinion—Are 

funds held in ‘‘Cash Management Accounts’’ viewed as brokered deposits by the FDIC?’’ (Feb. 

2005), available at: https://www.fdic.gov/regulations/laws/rules/4000-10350.html. 2GAO, ‘‘Financial Institutions: Causes and Consequences of Recent Bank Failures,’’ (Jan. 

2013), available at: https://www.gao.gov/products/GAO-13-71. 

MINORITY VIEWS 

H.R. 6158, the ‘‘Brokered Deposit Affiliate-Subsidiary Modernization Act of 2018,’’ would exempt affiliates or subsidiaries, as well 

as their employees, of depository institutions from the Federal Deposit Insurance Corporation’s (‘‘FDIC’’) limitations on brokered deposits to the extent they make deposits for their customers with 

their own affiliated banks. 

Some brokerages that are affiliated with a bank offer cash management accounts (also referred to as ‘‘sweep accounts’’ or ‘‘sweep 

deposits’’) to customers who keep cash in their brokerage accounts. 

These deposits would otherwise be considered brokered deposits 

and subject to the limitations under the Federal Deposit Insurance 

Act (12 U.S.C. 1831f). However, the FDIC has previously provided 

various administrative exemptions for these kind of sweep accounts, with certain limitations.1 In its current form, H.R. 6158 

would completely exempt these kinds of sweep accounts without 

any limitations. 

Unlike core deposits from traditional bank customers that are 

typically more stable and a less costly source of funding, brokered 

deposits are viewed as riskier because a broker generally pools deposits from many small investors and negotiates a higher rate for 

the pooled certificates of deposit. The concept of brokered deposits 

came out of the savings and loan (‘‘S&L’’) crisis of the 1980s when 

risky institutions bid for deposits in the open market to shore up 

their balance sheets. This was considered ‘‘hot money’’ and unreliable as a funding base because they could be quickly withdrawn by 

the broker. Although restrictions were put in place, the Government Accountability Office (‘‘GAO’’) found that, similar to the S&L 

crisis, brokered deposits contributed to several bank failures in the 

2008 financial crisis. In a report, GAO wrote that, ‘‘The failed 

banks also had often pursued aggressive growth strategies using 

nontraditional, riskier funding sources and exhibited weak underwriting and credit administration practices. . . . the use of brokered deposits, a funding source carrying higher risk than core deposits, were associated with an increased likelihood of failure for 

banks across all states during the period.’’ 2

In a report required by Section 1506 of the Dodd-Frank Wall 

Street Reform and Consumer Protection Act, the FDIC examined 

the various benefits and considerations with sweep accounts. The 

agency wrote: 

The FDIC recognizes in the examination process that 

sweep deposits from affiliates can be a stable source of 

15 

3FDIC, ‘‘Core and Brokered Deposit Study as Mandated by Section 1506 of the Dodd Frank 

Wall Street Reform and Consumer Protection Act,’’ (July 2011), available at. https:// 

www.fdic.gov/regulations/reform/coredeposits.html. 4FDIC Press Release, ‘‘FDIC Seeks Comment on the Treatment of Reciprocal Deposits,’’ (Sep. 

13, 2018), available at: https://www.fdic.gov/news/news/press/2018/pr18060.html. 

funding for financially sound institutions offering a market 

rate. . . . banks with an affiliate sweep program can seek 

a ‘‘primary purpose exception’’ under which a limited percentage of sweep deposits will not be considered brokered. 

. . . In all, sweep deposits from affiliates appear to pose 

fewer problems compared to brokered deposits in general. 

. . . While other sweeps from affiliates do not present all 

of the problems that traditional brokered deposits present, 

they pose sufficient potential problems—particularly due 

to their volume, dependence on the business success and 

strategy of an affiliate, the affiliate’s control over the deposits, and whether the deposits will leave banks once investment opportunities improve—that they should continue to come under the purview of the statute.’’ 3

H.R. 6158 seeks to address reasonable concerns. However, in bypassing a legislative hearing on the bill, we believe the Committee 

was not able to fully review the bill or the appropriateness of the 

bill’s proposed solution. Furthermore, the day after the Committee 

voted to report H.R. 6158 to the full House, the FDIC announced 

a new initiative to conduct a comprehensive review of the current 

brokered deposit rules,4 which may ultimately result in improvements that may more appropriately address the issues the bill purports to fix. 

For these reasons, we oppose H.R. 6158. 

MAXINE WATERS. 

CAROLYN B. MALONEY. 

NYDIA M. VELA ́ ZQUEZ. 

MICHAEL E. CAPUANO. 

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