FDICI Financial Institution Letter 

FIL-47 -2019 

Federal Deposit Insurance Corporation August 27, 2019 

550 17th Street NW, Washington, D.C.20429-9990

Risk-Focused, Forward-Looking Safety and Soundness Supervision 

Summary: The FDIC is updating its Risk Management Manual of Examination Policies (the Manual) to incorporate a new 

section titled Risk-Focused, Forward-Looking Safety and Soundness Supervision. The latter describes the FDIC’s longstanding philosophy and methods for supervising institutions by focusing on the areas presenting the greatest risks. The new 

section has been included in the new Part VI of the Manual titled “Appendix: Examination Processes and Tools,” and 

describes communication and risk-tailoring principles followed during safety and soundness examination activities. 

Statement of Applicability to Institutions with Total Assets under $1 billion: This Financial Institution Letter 

(FIL) provides information to FDIC supervisory personnel and is applicable to examination activities of all FDIC-insured 

institutions. This FIL is informational and does not require action on the part of insured institutions. 

Suggested Distribution: Highlights: 

FDIC-Supervised Institutions 

 Risk-focused supervision was adopted by the FDIC, the Board of 

Suggested Routing: 

Chief Executive Officer 

Chief Financial Officer 

Governors of the Federal Reserve System, and the Conference of 

State Bank Supervisors in 1997 as a framework for carrying out 

examination activities. Risk-focused supervision uses a tiered 

approach in which the scope of examinations and resources are 

Related Topics: focused on the areas in an institution presenting the greatest risks. 

Risk Management Manual of Examination Policies 

• The new section provides a comprehensive description of the 

FDIC OIG Evaluation Report on Forward-Looking FDIC’s long-standing examination philosophy and methods, 

Supervision, August 8, 2018 improves transparency of the FDIC’s examination practices, and 

FFIEC Emphasizes Risk-Focused Supervision in 

Second Update of the Examination Modernization 

Project, November 27, 2018 

reinforces the expectations placed on FDIC supervisory staff to 

conduct risk-focused, forward-looking supervision through 

examination activities. 

Uniform Financial Institutions Rating System, • The risk-focused approach is forward-looking in that it focuses on 

January 1, 1997 an institution’s risk management practices, consistent with the 

definitions contained in the Uniform Financial Institutions Rating 

Contact: System. It enables examiners to look beyond the condition of an 

institution at a point in time to how well the institution can respond to Rae-Ann Miller, Associate Director (Risk 

Management Policy), (202) 898-3898 or 

RMiller@fdic.gov 

changing market conditions given its particular risk profile. This 

approach seeks to identify and correct weaknesses in conditions or 

practices before they impact an institution’s financial condition. 

Note: 

Access FDIC Financial Institution Letters (FILs) on 

the FDIC's website 

 The new section reemphasizes the importance of clear and 

transparent communication and risk tailoring during the examination 

process in accordance with principles adopted by the FDIC as a 

Subscribe to receive FILs electronically member of the Federal Financial Institutions Examination Council. 

Paper copies of FDIC FILs may be obtained  The FDIC is updating the Manual to include the new section in 

through the FDIC's Public Information Center, response to recommendations made by the FDIC Office of 

3501 Fairfax Drive, Room E 1002, Arlington, VA Inspector General. 

22226 (877-275-3342 or 703-562-2200). 

• This FIL will become inactive 12 months after issuance. However, 

the updated information will remain in effect and is embedded in the 

new Part VI of the Manual titled “Appendix: Examination Processes 

and Tools.” 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk-Focused, Forward-Looking Safety and Soundness Supervision Section 20.1 

INTRODUCTION ..........................................................................................................................2 

Purpose of Examinations.............................................................................................................2 

Uniform Financial InstitutionsRating System.............................................................................2 

RISK-FOCUSED, FORWARD-LOOKING EXAMINATION PROCEDURES ...........................4 

Understanding the Institution ......................................................................................................4 

Planning the Examination............................................................................................................6 

Develop the Draft Examination Plan and Request List..............................................................6 

Identify Off-site/On-site Procedures..........................................................................................6 

Contact the Institution ...............................................................................................................7 

Communicate Preliminary Findings ..........................................................................................8 

Prepare the Report of Examination............................................................................................8 

Meet with the Institution’s Board of Directors ..........................................................................8 

Submit the ROE for Regional Office Review and Issuance to the Institution............................8 

Enforcement Actions.................................................................................................................9 

Following up onExamination Findings.....................................................................................9 

Ongoing Monitoring and Interim Contacts................................................................................9 

RMS Manual of Examination Policies 20.1-1 Risk-Focused, Forward-Looking Safety and 

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Risk-Focused, Forward-Looking Safety and Soundness Supervision Section 20.1 

INTRODUCTION 

This section describes the long standing philosophy and 

methods of the FDIC for examining institutions using a riskfocused, forward-looking approach. 

Each supervised institution is unique, based on its business 

model, complexity, and risk profile. Accordingly, 

examiners and case managers are expected to apply the 

instructions in this policy, as well as related instructions in 

the FDIC’s Risk Management Supervision Manual of 

Examination Policies (Manual)

1 consistent with each 

institution’s unique circumstances. The instructions set 

forth in this section are directed to FDIC supervisory 

personnel

2 in the conduct of supervisory activities and do 

not require action on the part of insured institutions. The 

principles discussed herein apply to both point-in-time and 

continuous examination approaches, though some specific 

activities discussed may differ. 

Purpose of Examinations 

An examination is the process whereby supervisory 

personnel of a regulatory agency evaluate financial 

institutions’ conditions, management processes,3 and future 

prospects; identify deficiencies that may threaten their 

soundness; assess their compliance with applicable laws and 

regulations; and develop recommendations for corrective 

action, as appropriate. 

Consistent with its mission, the FDIC conducts financial 

institution examinations to ensure public confidence in the 

financial system and to protect the Deposit InsuranceFund. 

Maintaining public confidence in the financial system is 

essential because customer deposits are a primary funding 

source that depository institutions use to meet fundamental 

objectives such as providing financial services. 

Safeguarding the integrity of the Deposit Insurance Fund is 

necessary to protect customers’ deposits and resolve failed 

institutions. 

On-site examinations help ensure the stability of insured 

depository institutions by identifying undue risks and weak 

risk management practices. Additionally, examinations play 

a key role in the supervisory process by helping the FDIC 

identify the root cause and severity of problems at 

1 Risk Management Supervision Manual of Examination Policies. 2 This term includes Risk Management Supervision staff such as 

examiners, field managers, case managers, and regional office 

management and is used throughout this document when a 

responsibility may be handled by varying parties based on 

regional management discretion.

3 Management processes include an institution’s corporate 

governance structure, policies, and procedures. 

individual institutions and emerging risks in the financialservices industry. Accurately identifying existing problems 

and emerging risks helps the FDIC develop effective 

corrective measures for individual institutions and broader 

supervisory strategies for the industry. 

Uniform Financial Institutions Rating System 

The federal financial institution supervisory agencies 

endeavor to ensure that all financial institutions are 

evaluated in a comprehensive and uniform manner, and that 

supervisory attention is appropriately focused on the 

financial institutions exhibiting financial and operational 

weaknesses or adverse trends. To promote this goal, the 

Federal Financial Institutions Examination Council 

(FFIEC) adopted the Uniform Financial Institutions Rating 

System (UFIRS) on November 13, 1979. The original rating 

system was designed to reflect, in a comprehensive and 

uniform fashion, an institution’s financial condition, 

compliance with laws and regulations, and overall operating 

soundness. 

The FFIEC revised the UFIRS on December 19, 1996, 

effective January 1, 1997.4 The revised rating system, 

known as CAMELS,5 reflects an increased emphasis on risk 

management processes. The Federal supervisory agencies 

historically considered the quality of risk management 

practices when applying the UFIRS, particularly in the 

management component; however, by 1996, changes in the 

financial services industry had broadened the range of 

financial products offered by institutions and accelerated the 

pace of transactions. Those trends reinforced the importance 

of institutions having sound risk management systems. 

Accordingly, the revised rating system added an explicit 

reference to the quality of risk management processes in the 

management component, and the identification of risk 

elements within the composite and component rating 

descriptions. 

Management practices, particularly as they relate to risk 

management, vary considerably among financial 

institutions depending on their size and sophistication, the 

nature and complexity of their business activities, and their 

risk profile. Each institution must properly manage its risks 

and have appropriate policies, processes, or practices 

4 See 62 Fed. Reg. 752, January 6, 1997, effective January 1, 

1997. 5 Under the UFIRS, each financial institution is assigned a 

composite rating based on an evaluation of six financial and 

operational components, which are also rated. The component 

ratings reflect an institution’s capital adequacy, asset quality, 

management capabilities, earnings sufficiency, liquidity position, 

and sensitivity to market risk (commonly referred to as the 

CAMELS ratings). 

Risk-Focused, Forward-Looking Safety and RMS Manual of Examination Policies 

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Risk-Focused, Forward-Looking Safety and Soundness Supervision Section 20.1 

in place that management follows and uses. Activities 

undertaken in a less complex institution engaging in less 

sophisticated risk-taking activities may only need basic 

management and control systems compared to the detailed 

and formalized systems and controls needed for the broader 

and more complex range of activities undertakenat a larger 

and more complex institution. 

The UFIRS takes into consideration certain and compliance 

factors that are common to all institutions. Compliance with 

laws and regulations is considered under the management 

component. Specialty examination findings (Compliance, 

Community Reinvestment Act, Government Security 

Dealers, Information Technology, Municipal Security 

Dealers, Transfer Agent, and Trust (or Fiduciary)) and the 

ratings assigned to those areas are taken into consideration, 

as appropriate, when assigning a composite rating and 

component ratings under UFIRS. 

Peer comparison data are not included in the rating system. 

The principal reason is to avoid over reliance on statistical 

comparisons to justify the component rating being assigned. 

Examiners are encouraged to consider all relevant factors 

when assigning a component rating. The rating system is 

designed to reflect an assessment of the individual 

institution, including its size and sophistication, the nature 

and complexity of its business activities, and its risk profile. 

Over the years, the UFIRS has proven to be an effective 

internal supervisory tool for evaluating the soundness of 

financial institutions on a uniform basis and for identifying 

those institutions requiring special attention or concern. 

Risk-Focused Approach to Examinations 

Risk-focused supervision was adopted by the FDIC, the 

Board of Governors of the Federal Reserve System, and the 

Conference of State Bank Supervisors on October 1, 1997, 

as a framework for carrying out examination activities. The 

FDIC described the then new framework as employing a 

tiered approach to supervision to assist examiners in 

establishing an appropriate examination scope and 

managing resources by focusing those resources on the 

areas in an institution presenting the greatestrisks.6 

The objective of a risk-focused examination is to evaluate 

the safety and soundness of the financial institution by 

assessing its risk management systems, financial condition, 

and compliance with applicable laws and regulations, while 

focusing on the bank’s highest risks. The risk-focused 

examination process seeks to strike an appropriate balance 

between evaluating the condition of an institution at a 

6 See FDIC 1997 Annual Report. 

certain point in time7 and evaluating the soundness of the 

institution’s processes for managing risk in all phases of the 

economic cycle. By evaluating an institution’s risk 

management practices, examiners look beyond the financial 

condition of a bank at a point in time, to how well it can 

respond to changing market conditions given its particular 

risk profile. The UFIRS emphasizes the importance of 

sound risk management processes by including them as a 

significant factor in the definition for each component rating 

and the overall composite rating. 

To achieve the risk-focused examination objective, FDIC 

supervisory personnel are expected to adhere to the 

following risk-tailoring principles and practices: 

• Recognize there are financial institutions, or areas 

within institutions, that present low risk, and in those 

cases, minimum (or baseline) examination procedures 

are generally sufficient to assess the institution’s 

condition and risks. 

• Allocate more examination resources to higher risk 

areas and fewer resources to lower risk areas. 

• Use data from the quarterly Call Report filings and 

other available information to monitor changes to the 

institution’s business model, complexity, and risk 

profile between examinations. 

• Leverage available information, including analyses 

and conclusions from ongoing off-site monitoring and 

previous examinations, to determine the financial 

institution’s risk profile and the scope of the next 

examination or examination activity. 

• Consider the financial institution’s ability to identify 

and control risks when risk-focusingexaminations. 

• Tailor the pre-examination request list to the 

institution’s business model, complexity, and risk 

profile. 

• Contact the institution between examinations or prior 

to finalizing the scope of the examination to help 

inform an examiner’s assessment of an institution’s 

risk profile. 

• Follow up between examinations on the institution’s 

actions taken to address areas in need of improvement. 

7 In addition to point-in-time examinations, the FDIC utilizes 

targeted reviews conducted under a supervisory plan, guiding a 

continuous examination program for certain institutions. These 

other programs are generally warranted to ensure effective 

monitoring and examination activity related to larger and more 

complex institutions. While the supervisory plan and continuous 

examination processes and procedures may differ in some 

respects from the point in time approach, the principles contained 

within this section are applicable to examination activities for all 

institutions supervised by the FDIC. 

RMS Manual of Examination Policies 20.1-3 Risk-Focused, Forward-Looking Safety and 

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Risk-Focused, Forward-Looking Safety and Soundness Supervision Section 20.1 

Further, FDIC personnel are expected to adhere to the 

following communication principles: 

• Provide appropriate prior notification of theupcoming 

examination and address staffing and logistical issues. 

• Tailor the examination request list and scope tothe 

unique risk profile and business model of the 

institution. 

• Facilitate the secure exchange of information between 

institution management and examiners. 

• Inform institution management of areas under review 

and provide management the opportunity to 

communicate any additional information or 

clarification before the conclusion of the examination. 

• Establish clear expectations regarding items and 

examination findings that the financial institution is 

expected to address.8 

←

RISK-FOCUSED, FORWARD-LOOKING 

EXAMINATION PROCEDURES 

Section 10(b) of the FDI Act requires the FDIC to conduct 

full-scope, on-site safety and soundness examinations of its 

supervised institutions.9 Risk-focused, full-scope 

examinations assess the types and extent of risks to which a 

banking organization is exposed, evaluate the 

organization’s methods of managing and controlling its risk 

exposures, ascertain whether management and directors 

fully understand and are actively monitoring the 

organization’s exposure to these risks, and evaluate 

compliance with banking laws and regulations. Riskfocused, full-scope examinations are forward looking in that 

they address weaknesses in risk management practices 

before they lead to financial deterioration or operational 

problems. 

The risk-focused supervision approach to examinations is 

not composed of a fixed set of routine procedures. Rather, 

the procedures that constitute a full-scope examination 

depend on the nature and complexity of the institution’s 

business activities, and its risk profile. At a minimum, 

however, full-scope examinations must include sufficient 

procedures to reach an informed judgment on the financial, 

8 The FDIC participated in the FFIEC Examination 

Modernization project to identify and assess ways to improve the 

effectiveness, efficiency, and quality of financial institutionsafety 

and soundness examination processes, with the expectation to 

help reduce unnecessary regulatory burden. Expectations for 

examiners to adhere to risk-tailoring and clear communications 

practices are part of the project. See FFIEC press releases related 

to Examination Modernization dated March 22, 2018 and 

November 27, 2018. 9 Federal Deposit Insurance Act. 

managerial, operational, and compliance factors rated under 

the CAMELS rating system.10 An examination meeting 

those requirements would meet the FDIC’s definition of a 

full-scope examination. 

Understanding the Institution 

To conduct a risk-focused examination, examiners must 

understand the nature, scope, and risk of an institution’s 

activities. The nature and scope of an institution’s activities 

are commonly referred to as the institution’s business 

model. The examiner will develop a written description of 

the bank’s business model by identifying the activities in 

which a banking organization has chosen to engage. 

The risk associated with an institution’s business model is 

commonly referred to as the risk profile. The examiner will 

develop a written description of the bank’spreliminary risk 

profile by determining the types and quantities of risks 

inherent in the bank’s business model and the quality of the 

risk management practices used by bank management to 

control these risks. 

A key component of both an institution’s business model 

and risk profile is the complexity of its operations. The 

examiner will develop a written description of the 

complexity of an institution’s operations through a review 

of its balance sheet structure and scope of operations. 

Business Model – To evaluate and develop a written 

description of an institution’s business model, an examiner 

will consider: 

• The primary market area and customer base served; 

• The organizational/ownership structure, strategic 

plan/focus, and philosophical approaches/riskappetite 

management is using to pursue its objectives; 

• The primary lending activities and funding sources, 

including any concentrations; 

• Any product line, activity, or service that represents a 

significant portion of assets or revenue; 

• Any unique or nichecharacteristics; 

• Any significant third-party relationships, including 

technology service providers; and 

10 This could include, as appropriate, risk management for 

Information Technology (IT), Bank Secrecy Act (BSA)/AntiMoney Laundering (AML)/Office of Foreign Assets Control 

(OFAC) reviews, Trust, Registered Transfer Agent, Municipal 

Securities Dealer, and Government Securities Dealer examination 

programs. These specialty examination areas are incorporated 

into CAMELS through the Management component rating, as 

outlined in the UFIRS. See 62 Fed. Reg. 752, January 6, 1997, 

effective January 1, 1997. 

Risk-Focused, Forward-Looking Safety and RMS Manual of Examination Policies 

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Risk-Focused, Forward-Looking Safety and Soundness Supervision Section 20.1 

• Any significant use of new or emerging technologies

to support customer products or bank operations,

whether offered alone by the institution or offered with

a third party.

Risk Profile – To evaluate and develop a written description 

of an institution’s preliminary risk profile, the examiner 

reviews the bank’s business model, its current financial 

condition, and trends in its financial condition. The 

examiner reviews information available within the FDIC, 

including prior Reports of Examination and workpapers, 

correspondence, applications and other filings, the Uniform 

Bank Performance Report, interim contacts, and off-site 

review reports. Further, the examiner communicates with 

the case manager and other FDIC stakeholders to obtain 

additional information. 

The examiner also considers the quality of institution 

management’s policies, practices, and processes in 

determining the risk profile of an institution. Such policies, 

practices, and processes are indicators of an institution’s 

governance and risk management framework, and can 

provide information to evaluate the institution’s ability to 

withstand and respond to internal and external challenges, 

including unforeseen scenarios (e.g. competition, adverse 

economic conditions).

The nature and scope of an institution’s activities influence 

the robustness of risk management practices for mitigating 

credit, market, operating, or transaction, strategic, 

compliance, legal, liquidity, and other risks. The examiner 

considers the inherent risks of the bank’s activities and the 

strength of risk mitigation practices when developing and 

documenting the current risk profile of the bank. This 

process enables the examiner to identify areas of greater risk 

that will be emphasized in conducting the examination. 

Risk management practices are primarily assessed 

considering the guidelines for the safe and sound 

operation of banks set forth in Section II of Part 36411 of 

the FDIC Rules and Regulations, Appendix A, 

though other regulations are also considered These 

guidelines set out safety and soundness standards that the 

agencies use to identify and address problems at 

institutions before capital becomes impaired.12 The 

guidelines are qualitative rather 

11 See Appendix A to Part 364 - Interagency Guidelines 

Establishing Standards for Safety and Soundness. 

12 If an institution fails to meet a standard prescribed by 

guideline, the FDIC may request the institution to submit an 

acceptable plan to achieve compliance with the standard. The 

FDIC generally expects to request submission of a compliance 

plan from an institution whose failure to meet one or more 

standards is of such severity that it could threaten the safe and 

sound operation of the institution. In other situations, the FDIC 

may elect to rely on an existing plan or enforcement action to 

than quantitative; they establish the objectives of proper 

operations and management, but leave the specificmethods 

of achieving those objectives to each institution. They are 

also designed to be flexible based on the nature of activities 

at the bank. The guidelines cover the following areas: 

• Internal controls and information systems;

• Internal audit systems;

• Loan documentation;

• Credit underwriting;

• Interest rate exposure;

• Asset growth;

• Asset quality;

• Earnings; and

• Compensation, fees, and benefits.

Complexity – A key component of both the institution’s 

business model and risk profile is the complexity of its 

operations. To determine complexity within an institution’s 

products, services, and delivery channels, the examiner 

evaluates a combination of factors, including, but not 

limited to, the sophistication of a particular activity or 

business line, risk presented by the activity, volume and 

scope of the activity, and interconnectedness among various 

activities and business lines within the institution. The 

examiner also considers strategic initiatives of the 

institution that impact the business model, risk profile, and 

complexity of the institution. In describing complexity, the 

examiner considers: 

• Structure – balance sheet composition, off-balance

sheet activities, asset and funding concentrations,

organizational and management structure, branching

activities, merger and acquisition activities, and

geographic footprint; and

• Operations – business lines, customer base, product

and service offerings, number and type of deposit and

lending transactions, delivery systems, international

exposure, operational risk,13 and specialtyareas.14 

ensure that an institution achieves compliance with the 

guidelines, rather than requiring the submission of a separate 

safety and soundness compliance plan. The FDIC may also seek 

corrective action through a Matter Requiring Board Attention.

13 Includes BSA/AML and IT, including cybersecurity. 14 Includes trust and asset management, consumer compliance, 

Community Reinvestment Act, registered transfer agent, 

government-securities dealers, and municipal-securities dealers. 

RMS Manual of Examination Policies 20.1-5 Risk-Focused, Forward-Looking Safety and 

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Risk-Focused, Forward-Looking Safety and Soundness Supervision Section 20.1 

Planning the Examination15 

Supervisory personnel contact financial institution 

management to establish an on-site examination start date. 

Supervisory personnel use this opportunity to gather initial 

information from institution management to assist the 

examination team with developing the institution’s risk 

profile. 

Develop the Draft Examination Plan and Request List 

Well in advance of the on-site examination start date, field 

management assigns an examiner to serve as theExaminerIn-Charge (EIC) and schedules the EIC to conduct 

examination planning. During the planning period, the EIC 

reviews available information on the bank, including 

previous reports of examination, correspondence, FDIC 

databases, economic data, and the initial risk profile 

information gathered from institution management. Based 

on this review, the examiner develops (or updates) 

preliminary written descriptions of the institution’s business 

model, risk profile, and complexity. The EIC then contacts 

institution management to discuss the preliminary 

assessment; seek management’s views regarding recent 

changes in its operations, economic conditions, or 

competition; and answer any questions bank management 

may have. 

The EIC then begins to develop a draft examination plan, 

which outlines the examination activities deemed necessary 

to fulfill the statutory requirement to complete an on-site, 

full-scope examination of the institution, given the 

institution’s business model, risk profile, and complexity. 

Further, the EIC estimates the needed examiner resources 

and skillsets. The EIC discusses initial plans with the 

appropriate case manager and field manager, and 

subsequently develops a written draft of the examination 

plan for management review. 

Next, the EIC develops a list of documents and other 

information necessary to carry out the plannedexamination 

activities. This information is requested by letter to 

institution management (the information request letter). The 

EIC is expected to tailor the information request letter to 

include only those documents necessary to examine the 

institution based on its unique business model, risk profile, 

and complexity. 

15 For the purposes of this discussion, planning of targeted 

reviews conducted as part of a continuous examination approach 

focuses on the subject of the review, where the point-in-time 

examination would encompass all aspects of a full scope 

examination. 

The EIC sends the information request letter to institution 

management sufficiently in advance of an upcoming 

examination to allow ample time for management to 

compile and submit requested documents. The EIC 

establishes a due date for the materials sufficiently in 

advance of the anticipated start date of the examination to 

allow for off-site examination work prior to the on-site start 

date. Further, the EIC facilitates the secure exchange of 

information between institution management and the FDIC, 

by ensuring that the delivery method(s) used meet the 

security measures discussed in the FDIC’s policies for the 

exchange, use, and storage of electronic information. 

Identify Off-site/On-site Procedures 

During the examination planning stage, the EIC is expected 

to identify examination activities that are appropriate for 

off-site review and those that are better suited for on-site 

review. The EIC discusses these activities with field 

management and incorporates them into the written 

examination plan. The determination of the extent of offsite or on-site for each examination activity will depend, in 

part, on the type and extent of electronic information 

available and whether the activity requires interaction with 

bank personnel. Examiners are expected to consider 

conducting examination procedures off-site, to the extent 

reasonably possible, in order to minimize disruptions to an 

institution’s normal business activities. 

Examiners are encouraged to conduct the following portions 

of a financial institution examination off-site: 

• Determine the scope of the examination and identify 

the loan review sample; 

• Review historical financial and supervisory data and 

perform initial analysis of capital, earnings, liquidity, 

and sensitivity to market risk; 

• Review the institution’s internal reports; 

• Review the institution’s written policies and 

procedures; 

• Review independent audits/reviews; and 

• Complete financial schedules and certain other pages 

of the Report of Examination (ROE). 

Regarding credit review, typically the most labor intensive 

part of a financial institution examination, the examiner may 

complete the following off-site: 

• Review loan policies; 

• Review performance report ratio data and management 

reports; 

• Preliminarily review the methodology used for 

estimating loan losses; 

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Risk-Focused, Forward-Looking Safety and Soundness Supervision Section 20.1 

• Determine the areas to be emphasized in the on-site 

review; 

• Determine the loan sample to be reviewed, and select 

and assign individual credits; 

• Group loans to related obligors; and 

• Review credit and investment files for quality, 

documentation, and compliance with bank policy and 

laws and regulations, if information is available in a 

format for off-site review. 

Examiners are expected to complete the following 

examination activities on-site: 

• Conduct in-depth discussions with management, 

• Verify financial information, 

• Observe and assess bank operations andinternal 

controls, 

• Collect follow-up documentation to complete the 

financial analysis, 

• Review documents that would be inappropriateor 

impractical to provide off-site, and 

• Conduct exit meetings with management. 

Contact the Institution 

After the EIC has reviewed requested materials and 

identified activities appropriate for off-site review, the EIC 

contacts bank management a second time to discuss 

examination logistics. The EIC shares with the institution a 

preliminary scope of review and discusses the size and 

composition of the examination team, including whether the 

examination staff includes multiple trainees. The EIC also 

shares plans for work to be completed off-site and on- site. 

FDIC field managers are expected to be mindful of an 

institution’s space and personnel limitations and schedule 

the number of examiners working on bank premises 

accordingly. 

Conducting the Examination 

Prior to the on-site portion of the examination, the 

examination team conducts off-site examination activities to 

review and analyze available information, including 

materials provided by the bank. During this timeframe, the 

EIC updates the examination plan, factoring in the review 

of requested materials, and submits the plan to field 

management for final approval. 

During the off-site examination process, or on the first day 

of the examination, the EIC invites board members to attend 

any or all meetings conducted during an examination. Their 

attendance often improves communication with outside 

directors and increases director knowledge of the 

examination process. These 

meetings also provide an opportunity for directors to discuss 

their views with examiners on bank-related matters, and give 

examiners the opportunity to gain further insight into the 

experience levels and leadership qualities of bank 

management. While encouraging participation in these 

meetings, the EIC should emphasize that attendance is 

voluntary and that a lack of participation will not be viewed 

negatively.16 

As soon as practicable, on or after the first day of the onsite portion of the examination, the EIC and on-site portion 

of the examination team meet with appropriate institution 

management to open lines of communication, develop plans 

for ongoing communication during the examination, and 

discuss any other informational needs or other issues. The 

EIC describes how document request materials obtained 

from the institution are being used during the examination. 

Informal meetings are held as needed throughout the 

examination to discuss various topics, including but not 

limited to following up on previous examination issues, 

discussing strategic and business plans, discussing loan 

review results, and discussing other material preliminary 

findings. 

The EIC is expected to coordinate regular communication 

among examination team members, such as examination 

team meetings, conference calls, or group emails, so that 

team members may share and discuss observations and 

findings. Team communication should occur at least once 

per week; more frequent communication may be 

appropriate if examination teams are dispersed. 

Based on the risk presented by the institution, examiners are 

expected to perform an appropriate level of transaction 

testing to verify: the adequacy of and adherence to internal 

policies, procedures, and limits; the accuracy and 

completeness of management reports and financial reports; 

the adequacy and reliability of internal control systems; the 

effectiveness of the bank’s risk management processes and 

practices; and compliance with laws and regulations. 

Examiners have the flexibility, subject to appropriate 

concurrence, to adjust the examination scope at any point 

during the examination based on findings to date. The 

rationale for changes in the examination plan will be clearly 

communicated to institution management, along with any 

significant adjustments to the breadth or depth of 

procedures, personnel, and examination schedule. 

16 See Risk Management Manual of Examination Policies, pages 

1.1-14 -15. 

RMS Manual of Examination Policies 20.1-7 Risk-Focused, Forward-Looking Safety and 

Federal Deposit Insurance Corporation Soundness Supervision (8-19) 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk-Focused, Forward-Looking Safety and Soundness Supervision Section 20.1 

Communicate Preliminary Findings 

Sufficiently in advance of exit meetings with institution 

management, the EIC provides and discusses preliminary 

findings, ratings, and supervisory recommendations with 

the Field Supervisor and Case Manager. 

Prior to the conclusion of the examination, examiners 

thoroughly discuss the tentative findings and supervisory 

recommendations with senior institution management, 

including the tentative CAMELS ratings assigned under the 

UFIRS, clearly indicating that ratings are subject to FDIC 

regional office review. Such meetings are critical in 

communicating tentative examination findings to institution 

management and providing management an opportunity to 

respond. 

During exit meetings, the EIC fully apprises institution 

management of examination findings and conclusions, 

including explaining the reasoning for proposed ratings and 

supervisory recommendations that will be cited in the ROE. 

Examiners also describe how document request materials 

obtained from the institution were used during the 

examination to support findings. 

Prepare the Report of Examination17 

The EIC prepares the ROE in accordance with the FDIC’s 

ROE Instructions18 contained within the Risk Management 

Supervision Manual of Examination Policies (Manual). 

Consistent with the forward-looking aspects of the riskfocused examination process, the ROE is designed to clearly 

convey issues that are cause for concern, explain the risks to 

the institution’s operations or financial performance if not 

addressed in a timely manner, and recommend appropriate 

corrective/remedial action. 

Within the ROE, supervisory recommendations are used to 

inform the institution of the FDIC’s views about changes 

needed in the bank’s practices, operations, or financial 

condition. Matters Requiring Board Attention (MRBA) is a 

subset of supervisory recommendations that need prompt 

action by the board of directors and senior management. The 

intent of supervisory recommendations and MRBAs is to 

establish clear expectations regarding items the institution 

should address in order to correct deficiencies before they 

cause deterioration in the bank’s financial condition. 

17 For targeted reviews where a full ROE is not to be issued, 

these concepts apply similarly to a supervisory letter.

18 See Risk Management Manual of Examination Policies, 

Section 19.1. 

Meet with the Institution’s Board of Directors 

The FDIC conducts meetings with boards of directors to 

encourage director involvement in, and enhance director 

awareness of, FDIC’s supervisory efforts and to increase the 

effectiveness of such efforts.19 Such meetings also provide 

an opportunity to discuss and exchange views on bank 

specific and industry related issues that may be outside the 

scope of the examination, but are important for promoting 

safe and sound operations; examples include planned bank 

initiatives or new or proposed banking regulations. 

The EIC meets with the board or a board committee during 

or subsequent to the examination when 36 months or more 

have elapsed since the last such meeting; the management 

component of the CAMELS rating is 3, 4 or 5; any other 

CAMELS performance rating is 4 or 5; or any two 

performance ratings are 3, 4 or 5. Other factors that may be 

relevant to the decision of holding a board meeting include 

whether: 

• The ROE contains MRBAs; 

• The institution has undergone a recent change in 

control, ownership, or top management; 

• The institution is operating in adverse economic 

conditions; 

• The institution’s management or board has requested a 

meeting; or 

• There exist any other unique conditions ortrends 

pertinent to the institution. 

An institution’s composite rating is an important variable in 

determining regional office participation in a board meeting. 

While regional office participation in meetings with banks 

rated composite 1, 2, or 3 is at the regional director’s 

discretion, the regional director or designee will participate 

in the board meeting of a bank with a composite rating of 4 

or 5. 

Submit the ROE for Regional Office Review and 

Issuance to the Institution 

The EIC notifies institution management when the draft 

report is submitted to the assigned regional office case 

manager for review. The assigned case manager is expected 

to ensure that the ROE clearly identifies areas of risk and 

contains appropriate supervisory recommendations to 

mitigate those risks, supervisory recommendations address 

the causes of deficiencies, supervisory recommendations 

that warrant board attention are scheduled as MRBAs in 

accordance with existing Manual 

19 Risk Management Manual of Examination Policies, page 1.1-

16. 

Risk-Focused, Forward-Looking Safety and RMS Manual of Examination Policies 

Soundness Supervision (8-19) 20.1-8 Federal Deposit Insurance Corporation 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk-Focused, Forward-Looking Safety and Soundness Supervision Section 20.1 

instructions, and CAMELS ratings are supported and are 

consistent with UFIRS definitions. 

Supervisory personnel keep institution management 

informed of any changes made to the ROE findings that 

differ significantly from the initial findings disclosed at the 

exit meetings with institution management. Examples of 

significant changes include, but are not limited to, a revision 

to any rating or the addition or deletion of a supervisory 

recommendation or an apparent violation. FDIC 

supervisory personnel will explain the reasons for the 

changes to initial examination findings, and institution 

management will be given a reasonable amount of time to 

re-confirm or change responses and commitments, as 

appropriate. 

The FDIC has established internal goals to ensure the timely 

sharing of information with financial institutions. These 

goals include transmitting Safety and Soundness ROEs to 

financial institutions within a median 75 days from the onsite examination start date and concluding regional office 

processing of Safety and Soundness ROEs within a median 

45 days from the EIC’s submission of the ROE to the 

regional office. The FDIC reports its performance relative 

to these goals on the FDIC’s Trust through Transparency 

webpage on www.fdic.gov. The case manager keeps 

institution management informed should unusual 

processing delays occur and provides the reasons for such 

delay. 

The regional office transmits the ROE to the institution’s 

board of directors with a letter summarizing the examination 

findings. In some cases, the transmittal letter will also 

request that the board provide a written response to the 

examination. Institution management is also invited to 

complete a post examination survey after each 

examination.

20 The survey is part of the FDIC’s continuing 

effort to improve the quality and efficiency of the 

examination process. Institution management is invited to 

complete the survey via a secure FDIC Website using an 

access code. The access code is included with an invitation 

letter accompanying each final ROE. All responses are 

submitted directly to the FDIC’s headquarters office and 

will be confidential. The FDIC uses the survey results to 

identify ways to improve the examination process. 

Post-Examination Responsibilities 

Safety and soundness supervision is an ongoing process of 

planning and conducting examinations, following up on the 

resolution of supervisory findings and supervisory 

20 Post-Examination Survey. 

recommendations, and monitoring institutions between 

examinations. 

Enforcement Actions 

Should an enforcement action be deemed necessary to 

address deficiencies identified during the examination, 

regional office personnel, with input from the EIC, develop 

the appropriate level of supervisory action (formal or 

informal) and engage the board of directors and 

management to ensure understanding and procure adoption. 

Once an enforcement action has been adopted, case 

managers review implementation progress reports 

submitted under the enforcement action to monitor the 

institution’s corrective actions. 

Following up on Examination Findings 

The institution’s assigned case manager reviews institution 

management’s response to the ROE, as applicable, and 

follows up on the disposition and resolution of MRBAs. 

Staff assigned to the Division Director will contact 

institution management in response to any request for postexamination contact within the post examination survey. 

Ongoing Monitoring and Interim Contacts 

The assigned case manager serves as the institution’s pointof-contact within the FDIC and will conduct ongoing 

monitoring of the institution’s risk trends and financial 

condition between examinations. Should the institution be 

flagged on any internal FDIC reports as an outlier based on 

quarterly Call Report data, the case manager reviews the 

data that caused the flag and may contact institution 

management, if needed, to obtain any additional 

information needed to review the matter. Further, the 

assigned case manager or field supervisor contacts 

institution management between examinations to inquire 

about any changes in institution operations, discuss topics 

of interest such as regulatory changes or industry trends, and 

answer questions from bank management. 

RMS Manual of Examination Policies 20.1-9 Risk-Focused, Forward-Looking Safety and 

Federal Deposit Insurance Corporation Soundness Supervision (8-19) 
 

 

 

 

 

 

 

 

 

 

 

 

 

FDICI 

Federal Deposit Insurance Corporation 

Financial Institution Letter 

FIL-49-2019 

September 9, 2019 

Request for Comments on Interest Rate Restrictions Applicable 

to Institutions That Are Less Than Well Capitalized 

Summary: The FDIC has issued a Notice of Proposed Rulemaking (NPR) seeking comment on proposed 

revisions to its regulations on interest rate restrictions that apply to insured depository institutions that are less 

than well capitalized. 

Statement of Applicability to Institutions with Total Assets Under $1 billion: This Financial Institution Letter 

applies to all FDIC-insured banks and savings associations, including community institutions. 

Suggested Distribution: 

FDIC-Insured Institutions 

Suggested Routing: 

Chief Executive Officer 

Chief Financial Officer 

Related Topics:

Brokered Deposits 

Highlights: 

• Under the proposed rule, the FDIC would amend the 

methodology for calculating the national rate and national 

rate cap for specific deposit products. The national rate 

would be the weighted average of rates offered on a given 

deposit product by all reporting institutions, weighted by 

domestic deposit share. 

Attachments: 

Proposed Rule on Interest Rate Restrictions 

Applicable to Institutions That Are Less Than Well 

Capitalized 

Contact: 

Division of Risk Management Supervision – 

Thomas F. Lyons, Chief, Policy and Program 

Development, (202) 898-6850 or tlyons@fdic.gov; 

Judy Gross, Senior Policy Analyst, (202) 898-7047 

or jugross@fdic.gov 

Division of Insurance and Research – 

Ashley Mihalik, Chief, Banking and Regulatory 

Policy, (202) 898-3793 or amihalik@fdic.gov 

Legal Division – 

Vivek V. Khare, Counsel, (202) 898-6847 or 

vkhare@fdic.gov; Thomas Hearn, Counsel, 

• The national rate cap applicable to less than well-capitalized 

institutions for particular products would be set at the higher 

of: (1) the 95th percentile of rates paid by insured depository 

institutions weighted by each institution’s share of total 

domestic deposits or (2) the proposed national rate (i.e., the 

weighted average) plus 75 basis points. 

• The proposed rule would also modify the current local rate 

cap calculation and process by allowing institutions that are 

less than well capitalized to offer up to 90 percent of the 

highest rate paid on a particular deposit product in the 

institution’s local market area. 

• The FDIC is seeking comments regarding the proposed 

approach as well as other alternative approaches discussed 

in the notice. 

• The NPR was published in the Federal Register on 

September 4, 2019. Comments will be accepted until 

November 4, 2019. 

• This FIL will become inactive 6 months after issuance. 

Note: 

Access FDIC Financial Institution Letters (FILs) on 

the FDIC's website 

Subscribe to receive FILs electronically 

Paper copies of FDIC FILs may be obtained 

through the FDIC's Public Information Center, 

3501 Fairfax Drive, Room E 1002, Arlington, VA

22226 (877-275-3342 or 703-562-2200). 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

46470 Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 

issued by States and territories

identified on the DHS website 

(Enhanced licenses issued by these

states are clearly marked Enhanced or

Enhanced Driver’s License); a military 

ID; or other Federal government issued

Photo-ID card. 

C. Procedure for Submitting Prepared

General Statements for Distribution 

Any person who has plans to present

a prepared general statement may 

request that copies of his or her

statement be made available at the 

public meeting. Such persons may

submit requests, along with an advance

electronic copy of their statement in 

PDF (preferred), Microsoft Word or 

Excel, WordPerfect, or text (ASCII) file

format, to the appropriate address

shown in the ADDRESSES section at the 

beginning of this document. The request

and advance copy of statements must be

received at least one week before the 

public meeting and may be emailed,

hand-delivered, or sent by mail. DOE

prefers to receive requests and advance

copies via email. Please include a

telephone number to enable DOE staff to 

make a follow-up contact, if needed. 

D. Conduct of Public Meeting

DOE will designate a DOE official to 

preside at the public meeting and may

also use a professional facilitator to aid 

discussion. The meeting will not be a

judicial or evidentiary-type public

hearing, but DOE will conduct it in

accordance with section 336 of the 

Energy Policy and Conservation Act, as

amended (42 U.S.C. 6306). A court

reporter will be present to record the 

proceedings and prepare a transcript.

DOE reserves the right to schedule the

order of presentations and to establish

the procedures governing the conduct of 

the public meeting. After the public

meeting and until the end of the 

comment period, interested parties may 

submit further comments on the 

proceedings and any aspect of the

rulemaking.

The public meeting will be conducted

in an informal, conference style. DOE 

will present summaries of comments

received before the public meeting,

allow time for prepared general 

statements by participants, and

encourage all interested parties to share

their views on issues affecting this

rulemaking. Each participant will be

allowed to make a general statement

(within time limits determined by DOE),

before the discussion of specific topics.

DOE will permit, as time permits, other

participants to comment briefly on any 

general statements.

At the end of all prepared statements

on a topic, DOE will permit participants 

to clarify their statements briefly and

comment on statements made by others.

Participants should be prepared to

answer questions by DOE and by other

participants concerning these issues.

DOE representatives may also ask

questions of participants concerning 

other matters relevant to this 

rulemaking. The official conducting the

public meeting will accept additional 

comments or questions from those

attending, as time permits. The

presiding official will announce any

further procedural rules or modification

of the above procedures that may be

needed for the proper conduct of the

public meeting.

A transcript of the public meeting will 

be included in the docket, which can be

viewed as described in the Docket 

section at the beginning of this 

document. In addition, any person may

buy a copy of the transcript from the

transcribing reporter. 

Signed in Washington, DC, on August 27, 

2019. 

Alexander N. Fitzsimmons, 

Acting Deputy Assistant Secretary for Energy 

Efficiency, Energy Efficiency and Renewable 

Energy. 

[FR Doc. 2019–19051 Filed 9–3–19; 8:45 am] 

BILLING CODE 6450–01–P 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 337 

RIN 3064–AF02 

Interest Rate Restrictions on 

Institutions That Are Less Than Well 

Capitalized 

AGENCY: Federal Deposit Insurance

Corporation (FDIC). 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The FDIC is seeking comment

on proposed revisions to its regulations

relating to interest rate restrictions that

apply to less than well capitalized

insured depository institutions. Under 

the proposed rule, the FDIC would

amend the methodology for calculating

the national rate and national rate cap

for specific deposit products. The

national rate would be the weighted

average of rates paid by all insured

depository institutions on a given 

deposit product, for which data are

available, where the weights are each

institution’s market share of domestic 

deposits. The national rate cap for

particular products would be set at the

higher of the 95th percentile of rates

paid by insured depository institutions

weighted by each institution’s share of 

total domestic deposits, or the proposed 

national rate plus 75 basis points. The

proposed rule would also greatly

simplify the current local rate cap

calculation and process by allowing less

than well capitalized institutions to 

offer up to 90 percent of the highest rate 

paid on a particular deposit product in

the institution’s local market area. 

DATES: Comments will be accepted until

November 4, 2019. 

ADDRESSES: You may submit comments

on the notice of proposed rulemaking

using any of the following methods: 

• Agency website: https:// 

www.fdic.gov/regulations/laws/federal/.

Follow the instructions for submitting

comments on the agency website. 

• Email: comments@fdic.gov. Include 

RIN 3064–AF02 on the subject line of

the message. 

• Mail: Robert E. Feldman, Executive

Secretary, Attention: Comments, Federal

Deposit Insurance Corporation, 550 17th

Street NW, Washington, DC 20429. 

• Hand Delivery: Comments may be

hand delivered to the guard station at

the rear of the 550 17th Street NW 

building (located on F Street) on

business days between 7 a.m. and 5 p.m. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Public Inspection: All comments 

received, including any personal

information provided, will be posted

generally without change to https:// 

www.fdic.gov/regulations/laws/federal.

Paper copies of public comments may

be ordered from the FDIC Public 

InformationCenter, 3501 NorthFairfax

Drive, Room E–1002, Arlington, VA

22226, or by telephone at (877) 275–

3342 or (703) 562–2200. 

FOR FURTHER INFORMATION CONTACT: 

Legal Division: Vivek V. Khare, Counsel,

(202) 898–6847, vkhare@fdic.gov;

Thomas Hearn, Counsel, (202) 898–

6967, thohearn@fdic.gov; Division of 

Risk Management Supervision: Thomas

F. Lyons, Chief, Policy and Program

Development, (202) 898–6850, tlyons@ 

fdic.gov; Judy Gross, Senior Policy

Analyst, (202) 898–7047, jugross@ 

fdic.gov. 

SUPPLEMENTARY INFORMATION: 

Policy Objectives 

On December 18, 2018, the FDIC

Board adopted an advance notice of

proposed rulemaking (ANPR) 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 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 46471 

‘‘ ’’ ’’ 

since the regulations were adopted.1 As 

described in the ANPR, interest rates

have been rising, however the national

rate that is used to calculate rate caps

applicable to less than well capitalized

banks has stayed low because of market

dynamics, including the introduction of

new deposit products and features. In 

an effort to ensure that the national rate 

cap is reflective of the prevailing rates

offered by institutions, the FDIC sought

comment on all aspects of its regulatory

approach relating to the interest rate

restrictions, and specifically asked for

comment on potential changes to the

methodology used to calculate the

national rate. The policy objective of

this NPR is to seek comment on a 

proposal that attempts to ensure that 

deposit interest rate caps appropriately

reflect the prevailing deposit interest

rate environment, while continuing to

ensure that less than well capitalized

institutions do not solicit deposits by

offering interest rates that significantly

exceed prevailing rates on comparable 

deposit products. The FDIC anticipates

that another NPR that addresses policy

issues related to brokered deposits more

generally will be issued at a later date. 

I. Background 

Section 224 of the Financial 

Institutions Reform, Recovery, and 

Enforcement Act of 1989 (FIRREA)

added section 29 to the Federal Deposit

Insurance (FDI) Act titled ‘‘Brokered 

Deposits.’’ The law originally restricted

‘‘troubled’’ insured depository

institutions without a waiver from (1)

accepting deposits from a deposit broker

and (2) soliciting deposits by offering 

rates of interest on deposits that are

significantly higher than the prevailing

rates of interest on deposits offered by

other insured depository institutions

(‘‘institutions’’ or ‘‘banks’’) having the

same type of charter in such depository

institution’s normal market area.2 

Section 29 defined a ‘‘troubled 

institution’’ as an undercapitalized

institution. Congress took further action 

two years later by enacting the Federal

Deposit Insurance Corporation

Improvement Act of 1991 (FDICIA). As 

part of FDICIA, Congress made several 

amendments to align section 29 of the

FDI Act with the prompt corrective

action (PCA) framework.3 One of these 

amendments broadened the 

applicability of section 29 from 

1 The ANPR was published for comment in the 

Federal Register on February 6, 2019. (84 FR 2366) 2 Public Law 101–73, August 9, 1989, 103 Stat.

183. 

3 The PCA capital thresholds are: (1) Well 

capitalized; (2) adequately capitalized; (3)

undercapitalized; (4) significantly undercapitalized;

and (5) critically undercapitalized. 

troubled institutions (i.e., 

undercapitalized banks) to any insured

depository institution that is not well

capitalized. 

Statutory Provisions Related to the 

Interest Rate Restrictions 

Under section 29, well capitalized

institutions are not restricted in paying

any rate of interest on any deposit.

However, the statute imposes interest

rate restrictions on categories of insured

depository institutions that are less than 

well capitalized. These categories are (1) 

adequately capitalized institutions with

waivers to accept brokered deposits

(including reciprocal deposits excluded 

from being considered brokered

deposits); 4 (2) adequately capitalized

institutions without waivers to accept

brokered deposits; 5 and (3) 

undercapitalized institutions.6 The 

statutory restrictions for each category

are described in detail below. 

Adequately capitalized institutions

with waivers to accept brokered 

deposits. Institutions in this category 

may not pay a rate of interest on

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.’’ 7 

Adequately capitalized institutions 

without waivers to accept brokered 

deposits. In this category, institutions

may not offer 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.’’ 8 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 without a waiver 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 

4 12 U.S.C. 1831f(e). 

5 12 U.S.C. 1831f(g)(3). 

6 12 U.S.C. 1831f(h). 

7 12 U.S.C. 1831f(e). 

8 12 U.S.C. 1831f(g)(3). 

area. 9 In other words, the depository

institution itself is a ‘‘deposit broker’’ if 

it offers 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 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.’’ 10 

II. Regulatory Approach 

The FDIC has implemented the 

statutory interest rate restrictions

through two rulemakings.11 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

interestraterestrictionswereupdatedin

a 2009 rulemaking.

‘‘Significantly Exceeds’’ or 

‘‘Significantly Higher.’’ 12 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.

13 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 

9 Id. 

10 12 U.S.C. 1831f(h). 

11 57 FR 23933 (1992); 74 FR 26516 (2009). 

12 The 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. 13 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. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

46472 Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 

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.’’ 14 

‘‘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.’’ 15 The FDIC determines an 

institution’s market area on a case-bycase basis.16 

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.’’ 17 

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 began to

plummet, 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 the benefit of having 

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 

1457FR 23933,23939(1992);74FR26516, 26520

(2009). 

15 57 FR 23933 (1992) and 74 FR 26516 (2009). 

16 12 CFR 337.6(f). 

17 57 FR 23933, 23938 (June 5, 1992). 

insured depository institutions and

branches for which data are 

available.’’ 18 At that time, the FDIC

noted that the ‘‘national rate’’ 

methodology represents an objective

average of rates paid by all reporting

insured depository institutions for

particular products. 

The ‘‘Prevailing Rate’’ 

The FDIC has recognized, as part of its

regulation on interest rate restrictions,

that 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 areas is 

the FDIC-defined national rate.19 

Application of the Interest Rate 

Restrictions 

A bank that is not well capitalized

generally may not offer deposit rates

more than 75 basis points above the

national rate for deposits of similar size

and maturity.20 

As noted above, the national rate is

defined as a simple average of rates paid

by all insured depository institutions 

and branches that offer and publish

rates for specific products. These

products include non-jumbo and jumbo 

CDs of various maturities, as well as

savings, checking and money market

deposit accounts (MMDAs).21 The FDIC 

receives interest rate data on various 

deposit products from a private data 

aggregator on a weekly basis. The data

aggregator computes the simple averages

for the various deposit products as well

as the corresponding national rate cap

by adding 75 basis points to each simple

average. The FDIC then publishes on a

weekly basis the national rate simple 

averages and corresponding national 

rate caps on its website.22 

If the posted national rates differ from

the actual rates in a bank’s local market 

area, the bank may present evidence to

the FDIC that the prevailing rate in a 

18 74 FR 26516 (2009). 19 74 FR 26516 at 26519 (2009). 

20 12 CFR 337.6(b)(2)(ii)(B). Well capitalized

banks are not subject to the interest rate restrictions 

in § 337.6. However, a quantitatively ‘‘well

capitalized’’ bank subject to a written agreement,

order to cease and desist, capital directive, or

prompt corrective action directive which includes 

a capital maintenance provision, is reclassified as

adequately capitalized for § 337.6 purposes. 

21 Jumbo accounts are accounts with deposits

greater or equal to $100,000. 

22Availableat: https://www.fdic.gov/regulations/ 

resources/rates/. 

particular market is higher than the

national rate.23 If the FDIC agrees with 

this evidence,24 the institution would be 

permitted to pay as much as 75 basis

points above the local prevailing rate for

deposits solicited in its local market 

areas. For deposits that are solicited on

the internet or otherwise outside its 

local market, the institution would have

to offer rates that do not exceed the 

national rate cap. In evaluating this

evidence, the FDIC may use segmented

market rate information (for example,

evidence by State, county or

metropolitan statistical area). Also, the

FDIC may consider evidence as to the 

rates offered by credit unions but only

if the insured depository institution

competes directly with the credit unions

in the particular market. 

III. 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.25 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. 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. 

23 12 CFR 337.6(f). 

24 The procedures for seeking such a

determination are set forth in FIL–69–2009 

(December 4, 2009). As explained in the FIL, an

insured depository institution can request a local

rate determination by sending a letter to the

applicable FDIC regional office. The institution

should specify its market area(s). After receiving the

request, the FDIC will make a determination as to

whether the bank’s market area is a high-rate area.

If the FDIC agrees that the bank is 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. 

25 The 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. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-12-Month CD, Comparison of Listing Service Top Ten Average Payers and the 

FDIC National Rate Cap, 2010 to Present 

Percent 

- - -Top Rates from a Listing Service 

- FDIC National Rate Cap (2010-Present) 

,, 

_, ' 

I \ 

4.0 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

0.5 

I 

'i.' 

\ 

' v',, ~---, \ ,,,, ---- 0.0 

2010 20ll 

...... ,_, __ ,, 

2012 2013 2014 2015 

, 

1 -------

I 

I 

I 

, 

_, , 

_, 

I 

2016 2017 2018 

Source: RateWatch, QwickR.ate. Rate caps shown for non-jumbo deposits(lessthan $100,000). 

2019 

Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 46473 

Since July 2015, however, market

conditions have changed so the current

national rate methodology results in a 

national rate for the 12-month CD that,

when 75 basis points are added,

produces a national rate cap that has

remained relatively unchanged and

could restrict less than well capitalized

institutions from competing for marketrate funding. Market conditions have

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. Interest rates

have been relatively low since 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 interest rates on

deposits (as published). This has held

down the simple average of rates offered

across all branches. Additionally,

institutions, including the largest banks, 

have recently 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 posted national

rate.

Because of these developments, the

majority of the institutions subject to the

interest rate caps have been granted

approval to use the local rate cap for

deposits obtained locally. The national 

rate cap, however, remains applicable to

deposits that these institutions obtained

from outside their respective normal

market area, including through the

internet.

Setting the national rate cap at a 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 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 a firm is prohibited

from offering a rate that ‘‘significantly

exceeds’’ or is ‘‘significantly higher’’ 

than the prevailing rate. This could

unnecessarily harm the institution and

its customers, especially when liquidity

planning is essential for safety and

soundness. At the same time, however,

the statute imposes interest rate 

restrictions on weak institutions. It has 

been the FDIC’s experience that while

some banks recover from problems,

others use high-rate funding and other 

available funds, not to recover, but to

delay insolvency—a strategy that could 

lead to increased losses for the deposit

insurance fund.26 

Consequently, the FDIC is proposing

to modify its regulations to provide a

more balanced, reflective, and dynamic

national and local rate cap that will

ensure that less than well capitalized 

institutions have the flexibility to access

market-rate funding, yet prevent them 

26See e.g., OIG Failed Bank Review for Proficio 

Bank, February 2018, FBR–18–001, (https:// 

www.fdicoig.gov/sites/default/files/publications/ 

FBR-18-001.pdf). 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

46474 Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 

from offering a rate that significantly

exceeds the prevailing rate for a

particular product, in accordance with

Section 29. 

Issues Raised by Commenters 

In response to the ANPR on brokered

deposits and interest rate restrictions,

the FDIC received over 130 comments 

from individuals, banking organizations,

non-profits, 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 current

national rate calculation and raised the 

same issues highlighted by the FDIC as

part of the ANPR. Most commenters

were of the view that the current 

national rate cap is too low. One reason

cited by commenters was that the largest 

banks with the most branches have a 

disproportional effect on the national

rate. These institutions have been slow 

to increase published rates even as

interest rates offered by community

banks and online-focused banks have 

begun to rise significantly in 

comparison. Many of these commenters

suggested that this skewing effect is

compounded by minimizing the

significance of online-focused banks,

which have few or no branches but tend 

to pay the highest rates. Commenters

also noted that the national rate is low 

because published rates (1) tend to be

lower than the actual interest paid on

deposits after negotiation and (2) may

not accurately reflect certain

promotional or cash bonus products.

Some commenters statedthat because 

of technological advances (e.g., internet 

and smartphones) any depositor can

shop nationwide for the best yield, so

all institutions compete in the national

market. As a result of this new way to

access deposits, along with the variety

of available deposit products,

commenters suggested that no single

formula or set of formulas would be able 

to accurately define the prevailing rate 

in an institution’s normal market area,

although commenters expressed a desire

for a more dynamic approach. One

commenter stated that there will always

be constant evolution in the types of 

interest paid to depositors, and new 

entrants will continue to develop

different products.

A number of commenters stated that 

the interest rate restrictions are 

penalizing less than well capitalized

institutions and increase the likelihood 

of a liquidity failure because such 

institutions would be at acompetitive 

disadvantage in raising deposit funding 

at the current rate caps.

Several commenters also raised 

concerns over examiners’ use of the 

national rate cap as a proxy for ‘‘high 

risk’’ deposits for well capitalized

banks. The FDIC has responded to these 

concerns by revising its Risk

Management Supervision Manual of

Examination Policies and clarifying to

examiners that rate caps apply only to

institutions that are less than well 

capitalized.27 

One commenter believed that it 

would be inconsistent with 

Congressional intent for the FDIC to take

action to modify interest rate 

restrictions in a manner that would 

allow less than well capitalized banks to

accept high-rate deposits. 

Recommendations Provided by 

Commenters 

Many commenters provided

recommendations for changing the

national rate and national rate cap

methodology. Commenters suggested

the following changes:

• The national rate calculation should 

include all comparable deposit rates,

including, for example, promotional CD

products (e.g., ‘‘off-tenor’’ terms), 

specials offered (e.g., cash incentives),

rewards checking products, and 

products that are available only in the

online marketplace.

• The national rate calculation should 

include one entry per bank charter

rather than the current approach that

calculates the simple average of

published rates by all branches.

• The national rate should be based 

on fixed income instruments such as 

U.S. Treasury yields or the Federal

Home Loan Bank advance rate. Some of 

these commenters suggested that the

current national rate cap should allow

institutions to choose between the 

higher of the national rate cap set in the 

1992 and the 2009 rulemaking. This

would allow less than well capitalized

institutions to offer rates at the higher of

(1) 120, or 130 percent for wholesale

deposits, of the U.S. Treasury yields

plus 75 basis points and (2) the current

national rate cap (simple average of all 

branches plus 75 basis points).

• The national rate calculation should 

be based on an average of the top listing

service rates. 

27 https://www.fdic.gov/regulations/safety/ 

manual/section6-1.pdf. For safe and sound 

operation, it is important for the management of any

institution to assess and monitor the characteristics 

of its entire funding base, to understanding of the

stability of all funding sources, and to identify 

potential funding shortfalls and sources that in a

stress event may become unavailable or cost

prohibitive. The FDIC is evaluating whether any 

further changes to the Manual are warranted. 

• Community banks should be able to

use a more tailored local market rate 

that includes online rates, specials, and

promotional rates.

Additionally, other commenters

asserted that the interest rate restrictions 

should be eliminated and replaced with 

growth restrictions on banks that are

undercapitalized or have serious asset

quality issues.

In response to the issues raised by

commenters, the FDIC seeks public

comments on a proposal to amend the

interest rate caps. The purpose of the

proposed rule would be to ensure that

the rate caps are more dynamic in that 

they remain reflective of the prevailing

rates offered through all stages of the

economic and interest rate cycles.

Additionally, the proposed rule is

intended to allow less than well 

capitalized insured depository

institutions subject to the interest rate

caps to reasonably compete for funds

within markets, and yet, in accordance

with Section 29, constrain them from 

offering a rate that significantly exceeds 

the prevailing rate for a particular

product. 

IV. Proposed Rule 

The proposal would amend the 

national rate and both the national rate 

cap and the local rate cap. The proposal

would also provide a new simplified

process for institutions that seek to offer

a local market rate that exceeds the 

national rate cap. 

National Rate 

The proposed national rate would be

the weighted average of rates paid by all

insured depository institutions on a

given deposit product, for which data

are available, where the weights are the 

institution’s market share of domestic 

deposits. Through this proposal, the

FDIC would continue to interpret the 

‘‘prevailing rates of interest . . . in an

institution’s normal market area’’ to be 

the national rate, as defined by

regulation. The key difference between

the proposed national rate and the

current national rate is that the 

calculation of the proposed national rate

would be a weighted average based on

an institution’s share of total domestic 

deposits, while the current methodology

is based on an institution’s number of 

branches. 

In determining the proposed national 

rate, the FDIC would calculate an

average rate per institution for each

specific deposit product that the

institution offers, and for which data is

available, including CDs of various

tenors, as well as savings accounts,

checking accounts and MMDAs. The

national rate for a specific deposit 
 

 

 

 

 

 

 

A /Bank A L Domestic deposits* Rate Paid L Domestic deposits = (3129.8/200000) = 1.56% 

BankM BankM 

Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 46475 

product would then be calculated by presents data for a hypothetical deposit national rate under the current 

multiplying each bank’s rate by its product. The national rate for this methodology weighted by branches to 

amount of domestic deposits, summing hypothetical deposit product would be the proposed methodology weighted by 

these values, and dividing by the total 1.56 percent, the average of the rates deposits. 

amount of domestic deposits held by offered by these banks, weighted by Calculation of the average using the 

such institutions. Table 1 below domestic deposits. Chart 2 compares the weighted methodology: 

TABLE 1 

Bank Total 

deposits 

Share of 

industry

deposits

(%) 

Rate 

(%) 

Bank A ......................................................................................................................................... 

Bank B ......................................................................................................................................... 

Bank C ......................................................................................................................................... 

Bank D ......................................................................................................................................... 

Bank E ......................................................................................................................................... 

Bank F ......................................................................................................................................... 

Bank G ......................................................................................................................................... 

Bank H ......................................................................................................................................... 

Bank I ........................................................................................................................................... 

Bank J .......................................................................................................................................... 

Bank K ......................................................................................................................................... 

Bank L .......................................................................................................................................... 

Bank M ......................................................................................................................................... 

Total ...................................................................................................................................... 

4,000 

3,000 

21,000 

4,000 

23,000 

12,000 

6,000 

76,000 

32,000 

3,000 

9,000 

2,000 

5,000 

2.00 

1.50 

10.50 

2.00 

11.50 

6.00 

3.00 

38.00 

16.00 

1.50 

4.50 

1.00 

2.50 

2.30 

2.25 

2.15 

2.05 

2.00 

1.99 

1.75 

1.45 

1.40 

1.00 

0.45 

0.25 

0.15 

200,000 100.00 N/A 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chart 2-Comparison of the Current National Rate and the Proposed National Rate for 

Various Deposit Products (as of May 20, 2019) ,,,, _______________________________ __ 

Percent 

L4 

l.2 

l 

o:s 

0:6 

0.4 

0.2 · 

0 -1""""""-'"""i""""''-

 .Ctm:eilt 

•Proposed 

Source: RateWatch. FDIC. 

Notes: Data are for May 20, 2019. 

Bank C /Bank A L Domestic deposits L Domestic deposits= (193000/200000) = 96.5% 

BankM BankM 

46476 Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 

National Rate Cap 

The proposal would interpret that a

rate of interest ‘‘significantly exceeds’’ 

the prevailing rate, or is ‘‘significantly 

higher’’ than the prevailing rate, if the 

rate of interest exceeds the national rate 

cap. The national rate cap would be set 

to the higher of (1) the rate offered at the 

95th percentile of rates weighted by 

domestic deposit share or (2) the 

proposed national rate plus 75 basis 

points. The FDIC would compute the 

permissible national ratecap applicable 

for different depositproducts and 

maturities on a monthly basis, and 

would plan to publish such information on the FDIC’s website on a monthly 

basis.28 

Rates offered at the 95th Percentile. 

Through this proposal, one method for 

the national rate cap would be the rate 

offered at the 95th percentile of rates 

weighted by domestic depositshare. By 

definition, the rates thatexceed this 

component of the national cap would be 

part of the top 5 percent of rates offered, 

weighted by domestic deposit share. In 

other words, setting the threshold at the 

95th percentile would allow institutions 

subject to the interest rate restrictions to 

compete with all but the top five 

percent of offered rates, weighted by 

domestic deposit share. Thisstandard is 

intended to set a reasonable proxy for 

rates that ‘‘significantly exceed’’ the 

prevailing rate in that the rate would 

allow less than well capitalized 

institutions to access market-rate 

funding. At the same time, it would constrain them from being at the very 

top of the market. 

To determine the rate being offered at 

the 95th percentile, the FDIC would 

calculate an average rate per institution 

for each specific depositproduct that 

the institution offers, and for which data method. 

is available, including CDs of various 

tenors, as well as savings, checking and 

MMDAs. These rates would be sorted by 

rate offered on the given deposit 

product from highest to lowest. An 

institution’s percentile would be 

determined by taking the sums of the 

amounts of domestic deposits held by 

the institution and by all the institutions 

offering a lower rate, dividing that value 

by the total domestic deposits held by 

all institutions for which data is 

available. The rate offered by the bank 

whose percentile was the first at or 

above the 95th percentile would be the 

rate at the 95th percentile. In Table 2 below, Bank C is the first 

institution offering a rate at or above the 

95th percentile. Therefore, Bank C’s rate 

of 2.15 percent would be the national 

rate cap for this hypothetical deposit 

product under the 95th percentile 

28 FDIC would retain discretion to publish more

or less frequently, if needed. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 46477 

TABLE 2 

Bank Total 

deposits 

Share of 

industry

deposits

(%) 

Cummulative 

deposits 

Percentile 

(%) 

Rate 

(%) 

Bank A ................................................................................. 4,000 2.00 200,000 100.0 2.30 

Bank B ................................................................................. 3,000 1.5 196,000 98.0 2.25 

Bank C ................................................................................. 21,000 10.5 193,000 96.5 2.15 

Bank D ................................................................................. 4,000 2.0 172,000 86.0 2.05 

Bank E ................................................................................. 23,000 11.5 168,000 84.0 2.00 

Bank F .................................................................................. 12,000 6.0 145,000 72.5 1.99 

Bank G ................................................................................. 6,000 3.0 133,000 66.5 1.75 

Bank H ................................................................................. 76,000 38.0 127,000 63.5 1.45 

Bank I ................................................................................... 32,000 16.0 51,000 25.5 1.40 

Bank J .................................................................................. 3,000 1.5 19,000 9.5 1.00 

Bank K ................................................................................. 9,000 4.5 16,000 8.0 0.45 

Bank L .................................................................................. 2,000 1.0 7,000 3.5 0.25 

Bank M ................................................................................. 5,000 2.5 5,000 2.5 0.15 

National Rate Plus 75 Basis Points. 

Through this proposal, the second

method for the national rate cap

methodology would be the proposed

national rate plus 75 basis points. This

method for the national rate cap would

build upon the long-standing

application that an amount that is 75

basis points above the average rates

offered on a particular product is an

appropriate proxy for a rate that

‘‘significantly exceeds’’ or is 

‘‘significantly higher’’ than the 

prevailing rate. The 75 basis point addon to this national rate cap would also 

provide needed flexibility during lowrate environments, or when the rate

paid at the 95th percentile is low due to

a convergence of rates being offered by

banks with relatively large deposit 

shares for particular products. In such 

cases, the 95th percentile may not

represent a rate that ‘‘significantly 

exceeds’’ or is ‘‘significantly higher’’ 

than the prevailing rate for particular

deposit products. 

Proposed Methodology 

Weighting the national rate and the

national rate cap by domestic deposits is

more representative of the amount of

deposits placed at offered rates than

weighting by branches (which is a

feature of the current method),

particularly for internet-only banks that

have a large share of deposits but few

branches and tend to pay higher rates.

Moreover, the use of percentiles

decreases the effects of institutions that 

may be viewed as pushing down the

average by offering very low published

rates, but at the same time may offer

special features, such as cash bonuses or

negotiated rates, that result in an

effective higher interest expense paid to

depositors than is reflected in the 

national rate cap by providing a more

dynamic calculation. This is because the

distribution of rates offered often 

reflects a large mass of rates at the low

end of the market and fewer rates 

offered at the high end of the market. As

many commenters noted, this

distribution has caused the current 

national rate caps (calculated using a

simple average) to remain low even as

more institutions begin to pay higher 

rates. Because one component of the

proposed national rate cap would be

based on rates paid at the 95th

percentile, the effect of having a large

mass of rates at the low end of the 

market would not be as pronounced.

There are, however, potential data

limitations with this proposed

methodology. 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 

national rate caps. If a rate offered by an 

institution that has a sizeable market 

share of total domestic deposits is not

included in the data sources, then the

national rate cap may not be truly

reflective of the market. In addition, if

the data is not consistently reported or

captured, the national rate cap could be 

subject to fluctuations from month to

month due to the methodology’s use of 

weighting. To ensure that all reported

rates are incorporated in the national

rate cap, the FDIC would review the 

data it receives to ensure that all rate 

information that has been provided is

incorporated 29 before making the 

national rate cap available on the FDIC’s 

website. 

There may also be other factors (e.g., 

geopolitical changes, changes to the

federal funds rate) that could have an

impact on the rates being offered and

may cause fluctuations in the national

rate cap, given the proposed weighting

by deposit share. Moreover, it is

possible that one institution, or a few

institutions, with a large deposit share

could affect the national rate cap by

withdrawing a product from the market

or by introducing a product into the

market. While such fluctuations, caused 

by factors other than data limitations,

would be reflective of changes in the

market, these changes could cause

downward volatility in the national rate

cap. In order to address the effect of this

potential downward volatility, the FDIC

proposes that, for institutions that are

subject to the interest rate restrictions,

any subsequent published national rate

cap, that is lower than the previously

published national rate cap, take effect 

3 days after publication. The previously 

posted national rate cap would remain

in effect during this 3-day period.

Furthermore, in the event of a

substantial unexpected decrease in the

national rate cap, the FDIC would have

the discretion to delay the date on 

which that national rate cap takes effect.

Until the subsequent national rate cap

takes effect, the previously published

national rate cap would remain in effect.

Table 3 below compares the current

and proposed national rate cap based

upon the various deposit maturities

using data from May 20, 2019,30 and 

provides the applicable rate cap that is

based upon the higher of the two

proposed national rate caps. 

published rates. 29To the extent possible, staff plans to review the 

Additionally, utilizing a percentile data for omissions that may have a significant 30 Historical data are only available through the 

methodology would improve the current impact on the national rate and national rate cap. end of May 2019. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

46478 Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 

TABLE 3—COMPARISON OF THE CURRENT NATIONAL RATE CAP AND THE PROPOSED NATIONAL RATE CAP FOR VARIOUS 

DEPOSIT PRODUCTS (AS OF MAY 20, 2019) 

Current national Proposed national Deposit products rate cap rate cap 

Interest Checking ......................................................................................................................................... 0.81 0.80* 

Savings ........................................................................................................................................................ 0.84 1.05 

MMDA .......................................................................................................................................................... 0.93 1.20 

1 month CD ................................................................................................................................................. 0.87 0.85* 

3 month CD ................................................................................................................................................. 0.97 0.94* 

6 month CD ................................................................................................................................................. 1.16 1.21 

12 month CD ............................................................................................................................................... 1.40 2.70 

24 month CD ............................................................................................................................................... 1.59 2.65 

36 month CD ............................................................................................................................................... 1.72 2.75 

48 month CD ............................................................................................................................................... 1.82 2.80 

60 month CD ............................................................................................................................................... 1.98 3.00 

* For these products, the Proposed Rate Cap as of May 20, 2019, would be based on the weighted mean plus 75 basis points methodology as

of March 2019. 

Source: FDIC and RateWatch. 

As part of this proposal, the FDIC

would continue to publish the national

rate cap for the on-tenor maturities

noted above in Table 3.31 If an 

institution seeks to offer a product with

an off-tenor maturity for which a rate is

not published by the FDIC, then the

institution would be required to use the

rate offered on the next lowest on-tenor 

maturity for that product as the

applicable national rate cap. For

example, an institution seeking to offer

a 26-month CD product must use the

rate offered for the 24-month CD 

product as the institution’s national rate 

cap. 

Historical Data. In determining the

appropriateness of the proposed

methodology for the national rate and 

national rate cap, the FDIC reviewed

and considered the proposed national

rate cap’s progression over time relative 

to the current and previous rate caps

and top rates from a listing service.

Appendix 1 of this document provides

charts with historical data for the 

various maturities. The charts illustrate 

that the proposed national rate cap set

to the rate offered at the 95th percentile

would be more reactive to and reflective 

of the fluctuations in the interest rate 

market than the current national rate 

cap for many of the maturities,

particularly those with tenors of 6

months or more and MMDAs. To the 

extent that the rate offered at the 95th 

percentile is flat, and does not react to

the top payers due to a convergence of 

31 On-tenor maturities include the following term

periods: 1-month, 3-month, 6-month, 12-month, 24-

month, 36-month, 48-month, and 60-month. All

other term periods are considered off-tenor

maturities for purposes of the interest rate

restrictions. 

rates among the banks with the largest 

deposit shares for particular deposit

products (as currently seen with the

interest checking product and the one

and three month CDs), then the national

rate plus 75 basis points would provide

flexibility for institutions to remain

competitive, while still satisfying the

statutory interest rate restrictions

applicable to less than well capitalized

institutions. 

Local Rate Cap 

Since the 2009 rulemaking,

competition for deposits among insured

depository institutions continues to 

grow increasingly digital and therefore

national in scope. Today, a consumer in

any market, including rural markets, can

access rates and shop for deposit

products by checking a variety of

websites. In light of this evolution, the

proposal would continue to presume

that the national rate cap applies to rates

offered on all deposits by less than well

capitalized institutions. However,

because the FDIC’s experience suggests

some institutions still do compete for

particular products within their local

market areas, the proposal would

continue to provide a local rate cap 

process.

Specifically, the proposal would 

allow less than well capitalized

institutions to provide evidence that any

bank and 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. This

would replace the current methodology 

that requires the local rate cap to be the

average of the rates offered by all 

competing institutions, which can

include credit unions, for a particular

product plus 75 basis points.

As part of this proposal, the FDIC

would define an institution’s market 

area as any readily defined geographical

area, which may include the State,

county or metropolitan statistical area,

in which the insured depository

institution solicits depositors by offering

rates on a particular deposit product.

Less than well capitalized institutions

that solicit deposit products outside of

their local market area, such as online

listing services, would not be allowed to

offer rates on those nationally-sourced

deposit products in excess of the 

national rate cap, and therefore would 

not be eligible for a local rate cap

determination for those products.

An institution’s local market rate cap

would be based upon the rate offered on

a particular deposit 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. If a less than well 

capitalized institution seeks to offer a

product with an off-tenor maturity that

is not offered by competing institutions 

within its local market area, then the

institution would use the rate offered on 

the next lowest on-tenor maturity for

that product when determining its local

market rate cap. For example, a less

than well capitalized institution seeking

to offer a 26-month CD product would

use the rate offered for a competitor’s 

26-month product. In this way, an

institution would be able to take into 

consideration rates offered on off-tenor 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 46479 

maturity products in calculating a local

rate cap. If a 26-month product was not 

being offered by a competitor, then the

institution would use the rate offered on 

a 24-month CD product to calculate the

institution’s local market rate cap.

A less than well capitalized

institution would not be permitted to

calculate its local rate cap based on rates

that are tied to a deposit balance. For

example, if a competing institution

offers different interest rates for different 

deposit balances for the same deposit

maturity, the institution may not pick

the highest rate from the competing

institution’s rates. The less than well 

capitalized institution should average 

thecompetinginstitution’sinterestrates 

for each size deposit within each

maturity period.32 In addition, a less

than well capitalized institution would

be permitted to use published rates

only, rather than adjusting a competing 

institution’s rates to reflect special

features, such as cash incentives being

offered by that competing institution,

when calculating its local market rate 

cap.

Similarly, for time deposits, the FDIC

would view lack of limits on 

withdrawals as a special feature. For

example, if an institution is reviewing a

competitor’s rates on a CD with a five 

year stated maturity but only a onemonth limit on withdrawals (or

considering offering such a product

itself), the FDIC would look to the 

substance of the product, which is more

akin to a one-month CD, when

considering a less than well capitalized

institution’s request for a local rate

determination. 

The proposal would also eliminate

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 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 

32 For example, a competing institution may offer,

on the same deposit product, 1 percent interest for

a minimum deposit of $10,000 and 2 percent

interest for a minimum deposit of $100,000. In such 

a case, for purposes of the local rate cap, the competing institution’s interest rate would be 1.5 

percent. 

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. As

described above, the institution would 

then be allowed to offer 90 percent of

the rate offered by a competitor in 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 two 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.

The proposal to amend the local rate

cap is intended to streamline the current 

local rate cap process and provide

additional flexibility for less than well

capitalized institutions to compete with

local competition offering rates in 

excess of the national rate cap. This

proposal would also address a popular

promotional method of attracting new

maturity deposits by offering higher 

rates on off-tenor products. 

TreatmentofNon-MaturityDepositsfor 

Purposes of the Interest Rate 

Restrictions 

For purposes of the interest rate

restrictions, the FDIC has from time to

time looked at the question of when nonmaturity deposits in an existing account

are considered ‘‘accepted’’ or ‘‘solicited.’’ 

The FDIC, through this proposal, is

considering an interpretation under

which non- maturity deposits are viewed 

as ‘‘accepted’’ and ‘‘solicited’’ for

purposes of the interest rate restrictions

at the time any new non-maturity 

deposits are placed at an institution.

Under this proposed interpretation,

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

interest rate restrictions. However, 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. If, however, the

same customer deposited funds into a 

new account and the balance in that 

account was subject to the interest rate 

restrictions, the balance in the initial 

account would continue to not be 

subject to the interest rate restrictions so

long as no additional funds were 

accepted. Interest rate restrictions also

generally apply to any new nonmaturity deposit accounts opened after

the institution falls to below well 

capitalized.

The term ‘‘accept’’ is also used in PCAtriggered restrictions related to

brokered deposits and employee benefit

plan deposits.33 The FDIC plans to 

address in a future rulemaking when

deposits are ‘‘accepted’’ for purposes of

these PCA-related restrictions, both for 

non-maturity deposits, such as

transaction accounts and MMDAs, as

well as for certificates of deposits and

other time deposits. 

V. Alternatives 

Below are alternatives that were 

considered, and on which the FDIC is

seeking comment, as part of this

proposed rulemaking. 

Higher of Two Previous Rate Caps 

As an alternative to replacing the 75

basis points as the threshold for

‘‘significantly exceeds’’ and the current 

simple average methodology for the

national rate, the FDIC considered

retaining the current threshold but

modifying it so that, for a particular

deposit product, the national rate cap 

would be 75 basis points added to the

higher of: (1) The current simple average

calculation; or (2) the methodology used

by the FDIC between 1992 and 2009,

i.e., 120 percent or, 130 percent for

wholesale deposits, of the applicable

Treasury security rate, plus 75 basis

points. 

Several commenters suggested that 

the FDIC allow institutions to pay the

higher of the previous national rate cap,

which tracks the yields on comparable

Treasury securities plus 75 basis points,

or the current national rate cap. Chart 3

below shows the national rate cap based

on Treasury securities from 1996 

through the present. The chart also

shows the current rate cap from 2009

forward, as well as the average of top

rates from a listing service from 1996 to 

the present.

BILLING CODE 6714–01–P 

33 See 12 U.S.C. 1821(a)(1)(D) and 1831f(a). 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9 

8 

7 

3 

2 

l 

Chart 3---12 Month CD, Comparison of Top Listing Service Rates, the FDIC 

National Rate Caps in Effect from 1996 to 2009 and from 2010 to Present 

---Top Rates from a Listing Service 

• • • • • • FDIC National Rate Cap (1992-

2009) 

-FDIC National Rate Cap (2010-

Present) .:· .. : .. .-. .-.. 

0-+----------------------------.....-----

1996 1998 2000 2002 2004 2006 2008. 2010 2012 2014 2016 2018 

SQ'ltli:e: .QwickR.ate. ti.$. t~. •Rate\Vllt@. Ra~• shown fornQli-.oonbti deposit$, le$$ than s100.ooo 

46480 Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 

BILLING CODE 6714–01–C 

Chart 3 illustrates the difficulties in 

determining a prevailing market rate

that accurately reflects the true market 

value of different deposit products in 

changing economic environments. The

method used to calculate the previous

national rate cap (using U.S. Treasury

securities) worked well for many years

because rates on Treasury obligations

tracked closely the rates on deposits. In

2008, however, the rates on Treasury

obligations dropped dramatically

because of a flight to quality during the

financial crisis. Consequently, the yields

on U.S. Treasuries fell faster than 

deposit rates and no longer tracked the

rates available on deposits, thereby

prompting the FDIC to change the

national rate to the current simple

average approach. The current approach

provided institutions much needed 

relief during the post-crisis years up

until 2015 when, as described above,

rates started increasing and the national

rate cap lagged behind. At the same 

time, however, because the current

methodology was so permissive, it

effectively made the interest rate 

restrictions non-constraining for less 

than well capitalized institutions for

several years.

Today, with the benefit of having data

to review the ability of previous and 

current national rate calculations to 

capture deposit market conditions, it is

apparent that neither measure works in

all interest rate environments. Given 

that the method used to calculate the 

national rate cap tied to U.S. Treasury 

securities works well under certain 

economic conditions (high-rate or

rising-rate environments), and the

current method of calculating the

national rate cap works well under other

economic conditions (falling-rate 

environment), the FDIC considered 

setting the national rate cap applicable

to less than well capitalized institutions

at the higher of the previous and current

rate caps. The FDIC also considered

whether the U.S. Treasury securities

index would warrant a multiplier plus

75 basis points, as previously provided. 

The FDIC believes that this alternative 

would be simple to administer and

provide immediate and continuous

relief to institutions subject to the

interest rate restrictions. Using a fixed

income product such as U.S. Treasury 

securities would also mitigate potential

data limitations in determining a

national rate based solely upon rates

reported to third-party sources.

However, U.S. Treasury securities are

not deposit rates and, as indicated by

the chart above, do not always track 

deposit rates. Also, U.S. Treasury

securities do not have the necessary

range of maturities that are prevalent

with deposit products, particularly with

the recent popularity of non-maturity 

deposits.34 Moreover, there are certain

rate environments in which neither 

alternative might be expected to yield a

rate that ‘‘significantly exceeds’’ or is 

‘‘significantly higher’’ than the 

prevailing rate, such as a high rate 

environment in which Treasury yields

dropped precipitously while deposit

rates remained constant. 

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 andthe 

34 One option considered is to use the overnight

Federal Funds rate in place of U.S. Treasury

securities for the non-maturity deposit products. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4-Current and Proposed Rate Caps Compared to Rate Cap Using 1-Bank-1-

Vote 

Percent 

3,0 

2.5 

LS 

0.5 

-ProposedCJp 

- --l-Bank-l-Vote Rate Olp 

- • Current Ra.te>Cap 

0.0 +----~----~----~---~----~----~---~-

2012 2013 2014 2015 2016 2017 2018 2019 

Source: Rate Watch. SNL. FDIC. Rates for non-jumbo 12-month CD under $100.000. 

Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 46481 

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. 

At the same time, setting the 

‘‘prevailing rate’’ based upon rates

offered at the top of the market might be

viewed as inconsistent with the FDIC’s 

historical interpretation that the

‘‘prevailing rates’’ offered should 

include rates offered by all participants

in the market. 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. Calculating the national 

rate with these special features is

problematic. Foremost, information

regarding special features is not

consistently provided by institutions to

private publications. Additionally, the

data provided by institutions on Call

Reports is limited to a very broad

category of interest expense on nonmaturity deposits and maturity deposits

on only a quarterly basis. Institutions do 

not provide details on the interest 

expense related to the variety of deposit 

products, particularly for maturity

deposits. 

One Vote per Institution 

Commenters also recommended that 

published rates be limited to the highest

rate offered by each depository

institution. 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. The

chart below compares, for the 12-month

CD, the current national rate cap (using

all branches) and the national rate rap

using the highest rate offered by each

IDI (in other words, each institution gets

‘‘one vote’’). The differences in rates

range from 15 to 52 basis points, with

a range of 25 basis points between 2012

through 2017, as illustrated in Chart 4

below. 

In the FDIC’s view, the one-bank, one- currently being offered. Moreover, the and the market rates. Therefore,

vote approach, almost by definition FDIC believes that institutions with including branches or weighting by

would result in a national rate that may multiple branches and more deposits market share is a more reflective way to 

not be reflective of market rates have a greater impact on competition calculate the national rate. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

46482 Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 

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,35 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. As such, the FHLB

borrowing rate would be an imprecise

indicator of rates offered on deposits by

insured depository institutions. 

VI. Expected Effects 

The interest rate restrictions apply to

an insured depository institution that is

less than well capitalized under the

Prompt Corrective Action (PCA) 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.36 

Currently, very few insured

depository institutions are less than

well capitalized. As of March 30, 2019,

there were 5,362 FDIC-insured

institutions. Of these, 22 had capital

ratios that put them in a PCA category

lower than well capitalized and hence,

potentially, affected by the proposed 

rule.37 The FDIC reviewed deposit

interest rate information for a sample of

17 of these institutions for which data 

were available. Twelve of the 17 paid 

35 Section 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). 

deposit interest rates that were less than

both the current and the proposed

national rate caps. Five of these 17

institutions paid interest rates on a

number of deposit products that

exceeded the current national rate cap

but were less than the proposed national 

rate cap. A few deposit products at three

of the banks paid rates exceeding both

the current and proposed national rate 

caps.

Deposit interest rates paid by less

than well capitalized banks that exceed

the current national rate cap reflect

situations where banks avail themselves 

of the local rate cap process. By 

generally increasing the level of the

national interest rate caps in the current

interest rate environment, the proposal

can be expected to reduce the need for

less than well capitalized banks to avail

themselves of the local rate cap process.

This is expected to simplify liquidity

planning for these institutions.

In some future less favorable 

economic and banking environment,

where the number of less than well 

capitalized banks increases

substantially, the effects of the rule

would become more meaningful.

Conceptually, under the proposed 

rule, the national rate cap would appear

more responsive to, and reflective of,

changes in the interest rate environment

than is the current national rate cap.

This 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. 

Having a national interest rate cap

that is more reflective of the interest rate 

environment may also result in lower

losses to the DIF. In the last financial 

crisis, the FDIC encouraged mergers and

problem asset reduction for problems

banks while they were opened as well 

as innovations in franchise marketing

for failed bank assets.38 Inappropriately

restricting banks from competing for

deposits could result in expedited

failures and less time for less than well 

capitalized institutions to solve their

problems either through asset sales or 

mergers. 

36 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). 

37 The 22 institutions do not include any

quantitatively well capitalized institutions that may 

On the other hand, by generally

increasing the rate caps, the proposed

rule may increase the possibility, as

compared to the current national rate

cap, that a less than well capitalized

institution could continue to fund 

imprudent operations by soliciting

insured deposits at high interest rates.

Since the proposal sets the national rate 

cap at the greater of the deposit 

weighted average rate plus 75 basis

points, or the 95th percentile of deposit 

weighted interest rates, two types of

interest rate environments should be 

distinguished.

When interest rates are low and the 

rates paid by institutions are distributed

over a relatively narrow band, the 

‘‘average plus 75 basis points’’ prong of

the rule would likely determine the cap.

The operation of the cap in these low

interest rate environments would be 

similar to the current cap, which defines

‘‘significantly exceeds’’ by reference to a

75 basis point difference. In higher or

rising interest rate environments, in 

which the deposit interest rates paid by 

institutions are widely dispersed, the

‘‘95th percentile’’ prong of the rule

would be more likely to determine the

cap. In these environments, the proposal

would in effect limit the interest rate 

paid by a less than well capitalized

institution to less than the top five

percent of deposit weighted rates on

comparable deposit products. This

ensures that the national rate cap will 

remain within a defined percentile band

of the distribution of prevailing interest 

rates. 

The FDIC is interested in commenters 

views on the impact of the proposed

rule in less favorable economic 

environments, as regard to the objective

of avoiding liquidity problems and

liquidity failures of viable institutions,

and the objective of ensuring that less 

than well capitalized institutions do not

solicit deposits at interest rates

significantly exceeding prevailing 

interest rates on comparable deposit

products. 

Appendix 1 

Historical charts illustrating the

proposed national rate cap, the top rates

offered, and the previous and current

national rate caps, where applicable,

since 2005. 

have been administratively classified as less than

well capitalized. 

38 Federal Deposit Insurance Corp., Crisis and

Response: An FDIC History, 2008–2013 (2017), pp.

134, 175 (https://www.fdic.gov/bank/historical/ 

crisis/crisis-complete.pdf). 
 

8 

7 

6 

5 

4 

3 

2 

·interest Checking 

---Proposed Rate Cap 

- • FDICNatiQnarRate Olp (2010-Present) 

- --Average .of Top 10 Offered Rates 

A 

,, 

0 +---------.----,.....--..---...------------,.....--....-----.---

200 S 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 

Source: RateWatcb. 

Note: The data points for 2019run lhrough March 2019. For this product. die Proposed Rate Cap wouldbe based on 

the weighted mean plus 75 basis points methodology as of March 2019. 

Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 46483

Interest chec 
 

8 

7 

6 

5 

4 

3 

2 

l 

Savings Accounts 

-Proposed Rate Cap 

- • FDIC National Rate Cap (2010-Present) 

- --Average. of Top Io Offered Rates 

, ," 

... •' 

0+------------------------------- 2005 2006 2007 200$ 2009 2010 2011 2012 20112014 2015 2016 2017 2018 2019 

Source: RateWatd1. 

NotQ: The data.point$ for 2019 run t):irough March 2019. For this product. the Proposed Rate Cap 

would be based on the wei~ted 95th percentile methodology as of March· 2019: 

46484 Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 
 

8 

7 

6 

2 ,. . -. 

Money Market 

- Propo d Rat ap 

- • FDI ational Rate ap (2010-Pre ent) 

• .. • rao of I op 10 Offi r d Ra.t 

,-, 

, 

J 

,, 

~· 

1 . -. 

0 -t----r---.-----r------r----r----r---.------r------r----.-------.----r-----r----,c2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 201 7 2018 2019 

Sotu·ce: RateWatch. 

ote: The data points for 2019 nm through March 20 19. F' or this product. the Propo ed Rate Cap would be ba. ed on 

the weighted 9 th percentile methodology as ofMarch. 2019. 

Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 46485 
 

8 

7 

6 

2 

l 

. 

... .. 

• . 

One Month CD 

-Proposed Rate Cap 

- • .FDIC National Rate Cap (2010-Present) 

"•••·-- FDICNatio111I Rate Cap (1992;..2009) 

- --Top Rates from. a. Listing Setvice 

.... , ........ ,... . ..... .,.., . .,.,- ' ,.,,. ,._.__,. ___ , .......... ,,,., ... --1• - -

o-------------------------------------

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 201$ 2016 2017 2018 2019 

Sow-ce: QwickRate, U,S.> Trea$tuy, aat~Wi!tl:h. 1-DIC, 

Note: The data points for 20191,m tbr<>up March ,2019 ~. For this product the JJroposed Rate Cap would be ba$M on die 

weighted mea:i plus. 7S basispoin~ methodology ~ ofi.tan:h 2019. 

46486 Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 
 

8 

7 

6 

4 

2 

l 

Three Month CD 

-Proposed Rate Cap 

- • FDI(JNationalRate Cap(2010-Present) 

"' ........ •FDIC NationalRate Otp(l992-2009) 

---Top Rates .. from. a Listing Service 

0 2005 +--....---------------------------- 20062007 2008 2009 2010201120122013 2014 2015 2016 2017 2018 2019 

Soutc:e! QwickRate..U.s. Tmsury. RateWitdJ. FDIC. 

Note: l'lle•data points for 20t9tU11tbrollgh 1'4aich 2019. For this ~ct the Proposed Rate Cap would be 

·~ on the ~ghted m¢a11.plt1$ '1Sbasis point'Smethodofogfas of March 2019~ 

Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 46487 
 

8 

7 :., ........ 

.. • -:-: ..... ~ • .• . .. . • • ... 6 .,•·· • .. 

• • • 5 : _, : I :• I 

4 .. ,, 

I 

3 ' 

2 

1 

Six Month CD 

-P1-oposed Rate Cap 

- • FDIC National RateCap.·(2010-Present) 

•••••<i"FDICNationalRateCap (1992-2009) 

•--Top Rates from a Listing Service 

o--------------------------------------

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 

Source: Qwkkbte. U.S. Tooury. RateWat<:h. FDIC; 

Note: The data points fof2019nmthrough Mardi 2019. For this product, the Proposed Rate Cap v.'Ouldbe based on 

the weighted. 9:Sth ~1tile methodofogy as of~b 2019 

46488 Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 
 

8 

7 

6 

s 

4 

3 

2 

I 

• • • • • 

One Year CD 

-Proposed Rate Cap 

- .. FDIC National Rate Cap (2010~Pi-esent) 

----•··•·FDICNational Rate Cap(l992.-2009) 

•••TopRates.fromaListingService 

0-+---.-----,.---------------...------....-------

200S 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 

Source: ~ddlate,: U,$. Treasury. RateWatch,; FDlC. 

Note: The· datt1 pq111ts for 2019nm through Match 2()19, F'~ tins prodticj, the Pt-oposedRate Cap would be based on the 

weighted 95thpercentilemethodology aso~ ·2019 

Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 46489 
 

8 

7 

6 

5 

4 

3 

2 

I 

.. 

• 

TwoYearCD 

-Proposed Rate Cap 

- • FDIC National Rate Cap (2010-Present) 

...... °FDIC National Rate cap (1992-2009) 

- - - Top Rates fi:om a Listing Service 

0 +-----------------------,.----------------------·. 

2005 2006 2007 2008 2009 20l0 2011 2012 2013 2014 2015 2016 2017 2018 2,019 

Sow-ce: QwickRate,U.$. Treaswy, RateWatck·FDIC. 

Not:e: The .data points for 2019 tun. through March. 2019. Fotthis product, the Proposed Rate Cap "-ould be based on the 

weighted 95tb pe,;centile methodology as ofMai::cl120l9 · · 

46490 Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 
 

8 

1 

6 

5 

4 

3 

2 I 

1 

Three Year CD 

-Proposed, Rate Cap 

- .. FDIC National Rate Cap (20lO~Present) 

••••• .. FDICNational RateCap(l992.-2009) 

- - - Top Rates froni a Listing Service 

0+--------------------..----------------------.-

2005 2006 2001 200s 2009 2010 20n 2012 20n 2014 201s 2016 2011 201s 2019 

SQUICe: Qwick:Rate, U.S. Tt~u:y. RateWatcll, FDIC. 

Note: The data points for20191,m through March 2019. For this product the Proposed Rate Cap would be based on the 

weighted 9$tfl percentile methodology as ofMarch 2Q19 

Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 46491 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8 

7 

4 

3 

2 

0 

.. 

• • • : ... ., •. -E' :• • 

•1 •·l ~ 

• •• 

Five Year C1D 

-Proposed Rate Cap 

- • FDIC National Rate Cap (2010-Present) 

...... FDIC National Rate Cap (1992-2009) 

---Top Rates from a Listing Service 

• • , •• 'I' 

... . '•·. . . . . . 

. ... . ,,. .. ,,,, . ,. ••• ,.• I 'I •••• 

,:., ... . ~.:. . .. ~ ·' •·•·· •· .. ~ .. •·· .. •• • • •··· jl Ill lffl • • I • "' llili 

. . 

• • • • 

. • 

_...,. .... - .. .- -

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 

Source: Qwick:Rate, U.S. Tre11sury. RateW11tch. FDIC. 

Note: TI1e dat11 points for 2019nu1 throu~ March 2019. For this product. the Proposed Rllte Cap would be based on 

the v.·ei~tod 9Sthperccntile methodology as ofM11rch 2019. 

46492 Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 

I. Request for Comment 

The FDIC invites comment from all 

members of the public regarding all

aspects of the proposal, including the

alternativesconsidered. Thisrequestfor

comment is limited to this proposal.

The FDIC will carefully consider all 

comments that relate to the proposal. In

particular, the FDIC invite comment on

the following questions: 

Question 1. Does the proposed 

calculation of the rate caps enable less

than well capitalized institutions to

compete for deposits while satisfying

section 29? If not, please explain why. 

Question 2. The FDIC proposes to

update the national rate cap information

every month, with discretion to update

the rate cap more or less frequently.

Currently, the FDIC updates this

information on a weekly basis. Should

national rate calculations be provided 

more or less frequently than every

month, as proposed? 

Question 3. U.S. Treasury securities 

do not have maturities that are 

comparable to non-maturity deposit 

products (e.g., money market or interest

checking). If the FDIC were to use U.S. 

Treasury securities in its calculation for

the national rate cap, is there a fixed

income product that could be used in

place of U.S. Treasury securities as a

proxy for the national rate cap for nonmaturity deposit products?

Question 4. The proposed national

rate and rate cap are weighted by 

deposit share, which gives relatively

more influence to internet-only

institutions that have large deposit 

shares than the current all-branch 

approach. Is this weighting system

appropriate?

Question 5. To address potential

downward volatility in the national rate

cap, the FDIC is proposing that, for

institutions that are subject to the

interest rate restrictions, any subsequent

published national rate cap, that is 

lower than the previously published

national rate cap, take effect 3 days after

publication. In certain circumstances,

the FDIC would also have discretion to 

delay the date on which a national rate

cap takes effect. Is this a reasonable

approach to address the effects of

potential downward volatility in the

national rate cap? Are there other ways

to address or reduce the effect of 

potential volatility on less than well

capitalized institutions that are subject 

to the interest rate restrictions? 

Question 6. Data limitations do not 

allow consistent means to include 

certain special promotions, like cash

bonuses, to be included in the proposed

national rate calculations. Is it 

appropriate to incorporate specials and

promotions? Is there another way to

capture these promotions or deposit

products that pay interest based upon

an index or are triggered at some future

date (e.g., step-up rates)? 

Question 7. The proposed national 

rate plus 75 basis points is being

proposed as an option for products

whose rates converge, as seen with a

few deposit products. While this 

appears to be a useful alternative for a

few products in the current rate

environment, it might be less

appropriate in other rate environments.

For example, this alternative could yield

a rate cap that does not ‘‘significantly 

exceed’’ the prevailing rate in a high

rate environment. Are there better 

options for setting a proxy to determine

what it means to ‘‘significantly exceed’’ 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 46493 

a prevailing market rate when rates

converge? 

Question 8. Should the local rate be 

exclusively limited to institutions with

a smaller geographical footprint? If so,

how should eligibility be determined? 

Question 9. If there is significant

movement downwards in the national 

rate cap from one publication period to 

the next, do institutions need additional

time to lower interest rates on particular

products in an effort to be in 

compliance with the rate caps? If so,

what is an appropriate amount of time? 

Question 10. internet institutions are 

not included in the local deposit rate 

calculation. Is this a reasonable 

approach? If the FDIC allowed

institutions to use internet competitors

in their local rate calculations, how

would they choose such competitors

and which ones should be chosen? 

Question 11. For purposes of the rate

restrictions, the FDIC is considering an 

interpretation under which balances in

non-maturity deposit accounts at the

time the institution becomes less than 

well capitalized are not subject to the

interest rate restrictions, but the balance

would be if new funds were deposited

into such accounts. Is this interpretation

appropriate? Would there be substantial 

operational difficulties for institutions

to monitor additions to these existing

accounts in order to determine when 

they would be subject to the interest rate

restrictions? 

VI. Administrative Law Matters 

A. Paperwork Reduction Act 

In accordance with the requirements

of the Paperwork Reduction Act (PRA) of

1995, 44 U.S.C. 3501–3521, 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 Office of

Management and Budget (OMB) control

number. This proposed rule does not

create a new or revise an existing

information collection. Therefore, no

Paperwork Reduction Act clearance

submission to OMB will be made. 

B. Solicitation of Comments on Useof 

Plain Language 

Section 722 of the Gramm-Leach 

Bliley Act,39 requires the Federal

banking agencies to use plain language

in all proposed and final rules

published after January 1, 2000. The 

FDIC invites your comments on how to

make this revised proposal easier to

understand. For example: 

39Public Law 106–102, 113 Stat. 1338, 1471 (Nov.

12, 1999). 

• Has the FDIC organized the material

to suit your needs? If not, how could the

material be better organized?

• Are the requirements in the

proposed regulation clearly stated? If

not, how could the regulation be stated 

more clearly?

• Does the proposed regulation

contain language or jargon that is 

unclear? If so, which language requires

clarification? 

• Would a different format (grouping

and order of sections, use of headings,

paragraphing) make the regulation

easier to understand? 

C. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA)

requires that, in connection with a

proposed rule, an agency prepare and

make available for public comment an

initial regulatory flexibility analysis that

describes the impact of the proposed 

rule on small entities.40 However, a 

regulatory flexibility analysis is not

required if the agency certifies that the

proposed rule will not have a significant

economic impact on a substantial

number of small entities, and publishes

its certification and a short explanatory

statement in the Federal Register

together with the proposed rule. The

Small Business Administration (SBA)

has defined ‘‘small entities’’ to include 

banking organizations with total assets

of less than or equal to $550 million that 

are independently owned and operated

or owned by a holding company with

less than or equal to $550 million in

total assets.41 

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.

The FDIC is proposing revisions to 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 proposal 

40 5 U.S.C. 601 et seq. 41 The SBA defines a small banking organization

as having $550 million or less in assets, where ‘‘a 

financial institution’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, effective December 2,

2014). ‘‘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. 

would also modify the current local rate

cap calculation and process.

Specifically, the proposal 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 rate offered at the 

95th percentile of rates weighted by 

domestic deposit share or (2) the

proposed national rate plus 75 basis

points.

Because the FDIC’s experience

suggests some institutions compete for

particular products within their local

market area, the proposal would

continue to provide a local rate cap 

process.

Specifically, the proposal 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. For the

reasons discussed below, the FDIC

certifies that the proposed rule will not

have a significant economic effect on a

substantial number of small entities. 

Based on March 31, 2019, Call Report

data, the FDIC insures 5,362 depository

institutions, of which 3,920 are

considered small entities for the 

purposes of RFA.42 As of March 31,

2019, 20 small, FDIC-insured depository

institutions were less than well 

capitalized.43 This represents less than

two-fifths of one percent of all FDICinsured institutions as of March 31,

2019, and approximately one-half of one

percent of small, FDIC-insured

institutions. For 17 small institutions 

that were less than well capitalized as

of March 31, 2019, and that reported

rates to a private data aggregator, FDIC

analysts compared the national rate caps

calculated under the current 

methodology with the national rate caps

which would have been in effect under 

the proposal during the month of March

across 11 deposit products.44 As 

42 March 31, 2019, FFIEC Call Report. 

43 Id. The 20 institutions do not include any

quantitatively well capitalized institutions that may

have been administratively classified as less than

well capitalized. 44 The 11 products are savings accounts, interest

checking accounts, money market deposit accounts,

1-month, 3-month, 6-month, 12-month, 24-month,

36-month, 48-month, and 60-month CDs. Jumbo

and non-jumbo rate caps reported for the week of 

March 4, 2019, were averaged for each of the 11

products to calculate a single rate cap per product 

under the current methodology. (https:// 

www.fdic.gov/regulations/resources/rates/ 

historical/2019-03-04.html). 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

46494 Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 

described in more detail below, the

analysis shows that the proposed

national rate caps are less restrictive 

than the current national rate caps, and

would reduce the likelihood that less 

than well capitalized institutions would 

need to avail themselves of the local rate 

cap determination process.

Five of the 17 (just under 30 percent)

less than well capitalized institutions

for which data were available reported

offering rates above the national rate

caps calculated under the current

methodology for seven out of the 11

products considered.45 Under the 

proposed methodology, three

institutions reported rates above the

national rate caps on two products.

Thus, the number of deposit products

with rates constrained by the national

rate cap is reduced for all five

institutions, and two of those

institutions would be relieved of the 

need to avail themselves of the local rate 

cap determination process.

For the 3-month, 6-month, 36-month,

and 48-month CD products, two less

than well capitalized small institutions

reported offering rates above the

national rate caps calculated under the

current methodology. On average, the 

reported offering rates were 6, 13, 29,

and 58 basis points above the national 

rate caps, respectively.

Three institutions reported offering

rates above the national rate caps

calculated under the current 

methodology for the 12-month and 24-

month CD products, and four reported

offering rates above the national rate

caps as currently calculated for the 60-

month CD product. Rates offered on the

12-month and 24-month CD products

were 37 and 45 basis points above the 

national rate caps, on average. Rates

offered on the 60-month CD product

averaged 26 basis points above the

national rate cap for that product.

Across all deposit products offered at

rates above the national rate caps

calculated under the current 

methodology, the rates offered were 30

basis points above the national rate caps 

on average.

Had the national rate caps in effect at

the time been calculated under the 

proposed methodology, then two less

than well capitalized small institutions

would have reported offering rates that

averaged 11 basis points above the

national rate cap for the 3-month CD

product, and one institution would have

reported offering a rate three basis 

45 This is not meant to suggest that these

institutions are not in compliance with the national 

rate caps, but rather that they have sought and 

points above the national rate cap for

the 48-month CD product.

Across all deposit products offered at

rates above the national rate caps

calculated under the proposed

methodology, the rates offered were 7

basis points above the national rate caps 

on average.

No less than well capitalized small

institution reported offering a rate above

the national rate caps calculated under

the current or proposed methodology for

savings, interest checking, MMDA, or 1-

month CD products during the

timeframe considered.

The number of small, less than well

capitalized institutions with offered 

rates above the national rate caps falls

from five under the current 

methodology to three under the

proposed methodology. Thus, the

number of small less than well 

capitalized institutions that need to rely

on a local rate cap is expected to fall.

The FDIC cannot more precisely

quantify the effects of the proposed rule 

relative to the current methodology 

because it lacks data on the dollar 

amounts placed in deposit products

broken down by the rates offered.

However, few small institutions are less

than well capitalized, and most of those

small, less than well capitalized

institutions for which data were 

available reported rates across the 11

deposit products considered that were

below the national rate caps as

calculated under both the current and 

proposed methodologies. For the few

less than well capitalized institutions as

of March 31, 2019 whose deposit

interest rates are constrained by the

current national rate cap but not the 

proposed rate cap, the effect of the rule

would be burden reducing in the sense 

of reducing the need for local rate cap

determinations.

Based on the foregoing information,

the FDIC certifies that the proposed rule

will not significantly affect a substantial

number of small entities. The FDIC 

welcomes comments on its analysis.

Specifically, what data would help the 

FDIC better quantify the effects of the

proposal compared with the current

methodology? 

D. Riegle Community Development and 

Regulatory Improvement Act 

Section 302 of the Riegle Community

Development and Regulatory

Improvement Act of 1994 (RCDRIA), 12

U.S.C. 4701, requires that each Federal

banking agency, in determining the

effective date and administrative 

compliance requirements for new

regulations that impose additional 

institutions, consider, consistent with

principles of safety and soundness and

the public interest, any administrative

burdens that such regulations would

place on depository institutions,

including small depository institutions,

and customers of depository

institutions, as well as the benefits of

such regulations.46 In addition, new

regulations that impose additional

reporting, disclosures, or other new

requirements on insured depository

institutions generally must 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.

Because the proposal would not

impose additional reporting, disclosure,

or other requirements on IDIs, section

302 of the RCDRIA therefore does not 

apply. Nevertheless, the requirements of

RCDRIA will be considered as part of

the overall rulemaking process. In

addition, the FDIC also invites any other

comments that further will inform the 

FDIC’s consideration of RCDRIA. 

List of Subjects in 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 proposes to amend

12 CFR part 337 as follows: 

PART 337—UNSAFE AND UNSOUND 

BANKING PRACTICES 

■ 1. 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. 

■ 2. Amend § 337.6 as follows: 

■ a. Revise paragraphs (a)introductory

text and (a)(3)(i) through (iii); 

■ b. Remove paragraph (a)(5)(iii); 

■ c. Remove paragraphs (b)(2)(ii) and

(b)(3)(ii) and redesignate paragraphs

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

and (3); and 

■ d. Remove paragraph (f).

The revisions read as follows: 

§ 337.6 Brokered deposits.

(a) Definitions. For the purposes of

this section 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 

received local rate determinations that allow them

to offer certain products at rates above the national reporting, disclosure, or other 

caps. requirements on insured depository 46 12 U.S.C. 4802. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Proposed Rules 46495 

undercapitalized,11 shall have the same 

meaning for 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.13 

* * * * * 

■ 3. 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 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) The interest rate offered on a 

particular deposit product at the 95th 

11 The term undercapitalized includes any 

institution that is significantly undercapitalized or 

critically undercapitalized under regulations

implementing section 38 of the Federal Deposit 

Insurance Act and issued by the appropriate federal

banking agency for that institution. 

12 For the most part, the capital measure terms are

defined in the following regulations: FDIC—12 CFR 

part 324, subpart H; Board of Governors of the

Federal Reserve System—12 CFR part 208; and

Office of the Comptroller of the Currency—12 CFR 

part 6. 13The regulations implementing section 38 of the

Federal Deposit Insurance Act and issued by the 

federal banking agencies generally provide that an 

insured depository institution is deemed to have

been notified of its capital levels and its capital

category as of the most recent date: (1) A 

Consolidated Report of Condition and Income is

required to be filed with the appropriate federal

banking agency; (2) A final report of examination

is delivered to the institution; or (3) Written notice

is provided by the appropriate federal banking

agency to the institution of its capital category for

purposes of section 38 of the Federal Deposit

Insurance Act and implementing regulations or that

the institution’s capital category has changed.

Provisions specifying the effective date of

determination of capital category are generally

published in the following regulations: FDIC—12

CFR 324.402; Board of Governors of the Federal

Reserve System—12 CFR part 208, subpart D; and

Office of the Comptroller of the Currency—12 CFR 

6.3. 

percentile by insured depository

institutions, for which data is available,

weighted by each institution’s share of 

total domestic deposits; or

(ii) The national rate plus 75 basis

points.

(3) Local market rate cap. 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 area, which may include

the State, county or metropolitan

statistical area, in which the insured

depositoryinstitutionsolicitsdepositors

by offering rates on a particular deposit

product.

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

On-tenor maturities include the 

following term periods: 1-month, 3-

month, 6-month, 12-month, 24-month,

36-month, 48-month, and 60-month. All 

other term periods are considered offtenor 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 andmaturities, 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 (e) 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 under this section. 

(2) Institutions that are not well 

capitalized. An institution that is not 

well capitalized may not accept or

solicit deposits by offering a rate of 

interest on any deposit which exceeds

the national rate cap. A less than well

capitalized institution that seeks to pay

a rate above the national rate cap but not

exceeding its local market rate cap, 

should follow the notice provisions in

paragraph (d) of this section. 

(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 

areatotheappropriateregionaldirector.

The institution shall update itsevidence 

and calculations periodically, as

requested by the appropriate regional

director, and make such information

available for inspection by examination

staff. 

(e) Offering products with off-tenor 

maturities. If an institution seeks to 

accept or solicit by offering a product

with an off-tenor maturity for which the

Corporation does not publish the

national rate cap or that is not accepted

or solicited by competing institutions

within its local market area, then the

institution will be required to use the

rate accepted or solicited on the next

lowest on-tenor maturity for that 

product when determining its 

applicable national or local market rate 

cap. For example, an institution seeking 

to accept or solicit 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 market rate 

cap. 

(f) Discretion to delay effect of 

published national rate cap. In the 

event of a substantial unexpected

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. 

Federal Deposit Insurance Corporation.

By order of the Board of Directors.

Dated at Washington, DC, on August 20, 

2019. 

Robert E. Feldman, 

Executive Secretary. 

[FR Doc. 2019–18360 Filed 9–3–19; 8:45 am] 

BILLING CODE 6714–01–P 
 

 

 

 

 

 

 

 

 

 

 

 

CI 

550 17th Street NW, Washington, D.C.20429 9990

Federal Deposit Insurance Corporation 

-

Financial Institution Letter 

FIL-53-2019 

September 27, 2019 

New Appraisal Threshold for Residential Real Estate Loans 

Summary: The FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency (the Agencies) have 

jointly issued an amended rule (the Appraisal Rule) that increases the threshold for residential real estate transactions 

requiring an appraisal from $250,000 to $400,000. For transactions exempted by the $400,000 threshold, the 

Appraisal Rule requires an evaluation. The Appraisal Rule also incorporates the appraisal exemption for rural 

residential properties provided by the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRCCPA) 

and requires evaluations for these exempt transactions. In addition, the Appraisal Rule requires appraisals for 

federally related transactions to be subject to appropriate review for compliance with the Uniform Standards of 

Professional Appraisal Practice (USPAP). 

Statement of Applicability to Institutions Under $1 Billion in Total Assets: This Financial Institution Letter 

applies to all FDIC-supervised institutions. 

Distribution: 

FDIC-Supervised Institutions 

Suggested Routing: 

Chief Executive Officer 

Chief Credit Officer 

Highlights: 

• Title XI of the Financial Institutions Reform, Recovery, and 

Enforcement Act of 1989 (Title XI) requires the Agencies to adopt 

regulations prescribing standards for appraisals used inconnection 

Chief Risk Officer 

Related Topics

Part 323 of the FDIC Rules and Regulations 

with federally related transactions within the jurisdiction of each 

agency, and that they be performed by certified or licensed 

appraisers. Title XI authorizes the Agencies to establish a 

threshold level below which an appraisal is not required. 

Attachment: 

Residential Appraisal Threshold Final Rule 

Contact: 

Beverlea S. Gardner, Senior Examination Specialist, at 

Bgardner@fdic.gov or (202) 898-3640 

FDIC Office of the Ombudsman, at 

(877) 275-3342 or ombudsman@fdic.gov 

Note: 

Access FDIC Financial Institution Letters (FILs) on the 

FDIC's website 

Subscribe to receive FILs electronically 

Paper copies may be obtained through the FDIC’s Public 

Information Center, 3501 Fairfax Drive, E-1002, Arlington, 

VA 22226 (877-275-3342 or 703-562-2200). 

• The Appraisal Rule creates a new definition of, and a separate 

category for, residential real estate transactions and raises the 

threshold for requiring an appraisal for such transactions from 

$250,000 to $400,000. 

• For transactions exempt under the applicable thresholds, the 

Appraisal Rule requires an appropriate evaluation of the real 

property collateral that is consistent with safe and soundbanking 

practices but does not need to be performed by a licensed or 

certified appraiser or meet the other Title XI appraisalstandards. 

• The Appraisal Rule also incorporates the appraisal exemption for 

rural residential properties added to Title XI by Section 103 of 

EGRCCPA and requires evaluations for these transactions. 

• Finally, the Appraisal Rule requires appraisals for federally related 

transactions to be subject to appropriate review for compliance with 

the USPAP, pursuant to Title XI, as amended by the Dodd-Frank 

Wall Street Reform and Consumer Protection Act. 

• The final rule becomes effective the first day after publication inthe 

Federal Register, except for provisions related to appraisal review 

and the evaluation requirement related to the rural residential 

exemption, which become effective January 1, 2020. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FACT SHEET 

Federal Deposit Insurance Corporation 

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September 17, 2019 Media Contact: 

Julianne Fisher Breitbeil 

(202) 898-6895

JBreitbeil@fdic.gov 

FACT SHEET: Overview of the Community Bank Leverage Ratio Framework 

• The community bank leverage ratio (CBLR) framework is an optional framework that is designed to 

reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for 

qualifying community banking organizations that opt into the framework. The framework provides a simple 

measure of capital adequacy for qualifying community banking organizations, consistent with section 201 of 

the Economic Growth, Regulatory Relief and Consumer Protection Act. 

• Qualifying community banking organizations that elect to use the CBLR framework and that maintain a 

leverage ratio of greater than 9 percent are considered to have satisfied the risk-based and leverage capital 

requirements in the generally applicable capital rule. In addition, these institutions are considered to have 

met the well-capitalized ratio requirements for purposes of section 38 of the Federal Deposit Insurance Act. 

• The main components and requirements of the CBLR framework are as follows: 

Community Bank Leverage Ratio (CBLR) Framework 

Qualifying Community • Leverage ratio greater than 9 percent 

Banking Organization • Less than $10 billion in average total consolidated assets 

• Off-balance-sheet exposures of 25 percent or less of total 

consolidated assets 

• Trading assets plus trading liabilities of 5 percent or less of 

total consolidated assets 

• Not an advanced approaches banking organization 

Calculation of the 

Leverage Ratio Tier 1 capital / Average total consolidated assets 

Leverage Ratio

Requirement Greater than 9 percent 

Grace Period A two-quarter grace period (which begins at of the end of the 

calendar quarter in which the electing banking organization 

ceases to satisfy any of the qualifying criteria) to either meet the 

qualifying criteria again or to comply with the generally applicable 

capital rule. 

• Grace period applies when a banking organization’s leverage 

ratio is 9 percent or less but greater than 8 percent. 

• A banking organization that fails to maintain a leverage ratio 

greater than 8 percent would not be permitted to use the grace 

period and must comply with the generally applicable capital 

rule, and file the appropriate regulatory reports. 

• Grace period does not apply in the case of a merger or 

acquisition. 

A qualifying community banking organization may opt into and out of the community bank leverage ratio framework 

by completing the associated reporting requirements on its Call Report. To learn more, visit the press release 

related to capital simplification for qualifying community banking organizations and early adoption of certain related 

simplifications to the regulatory capitalrequirements. 

Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation’s banking 

system. The FDIC insures deposits at the nation’s banks and savings associations, 5,303 as of June 30, 2019. It promotesthe 

safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The 

FDIC receives no federal tax dollars—insured financial institutions fund its operations.

FDIC press releases and other information are available on the Internet at www.fdic.gov, by subscription 

electronically (go to www.fdic.gov/about/subscriptions/index.html) and may also be obtained through the FDIC’s 

Public Information Center (877-275-3342 or 703-562-2200). Fact Sheet 2019