Brokered Deposit Timeline

February 14, 2020

Set forth below is a timeline of key legislative and regulatory developments concerning brokered deposits that was prepared for a program in Washington, D.C. sponsored by Women in Housing and Finance.  A panel comprised of Paul Clark and representatives of the American Bankers Association and the Consumer Bankers Association discussed the FDIC’s recent proposal to amend its brokered deposit regulations.

 

1980 Monetary Control Act de-regulates interest rates on deposit accounts.
1982 Securities brokers begin offering CDs to retail customers.
1983 Thrift crisis begins to accelerate.
1984 FDIC and Federal Home Loan Bank Board adopt rule eliminating “pass-through” deposit insurance for deposits placed by a “deposit broker” as defined in the rule (“brokered deposits”).
1985 U.S. Court of Appeals for D.C. affirms lower court decision overturning the rule as beyond the scope of the agencies’ authority.
1989 Congress adopts FIRREA to re-capitalize the insurance funds and limit acceptance of brokered deposits without a waiver by “undercapitalized” institutions. Definition of “deposit broker” from the invalidated FDIC rule is used in the statute.
1990 FDIC adopts Rapid Asset Growth rule that requires banks utilizing brokered deposits and other “purchased liabilities” to grow more than 9% per quarter to seek FDIC approval.

Treasury Department study of deposit insurance recommends elimination of “pass-through” insurance for brokered deposits.

1991 Congress adopts FDICIA, which utilizes the “prompt corrective action” capital categories to limit brokered deposits to “well capitalized” banks and “adequately capitalized” banks with a waiver. Definition of deposit broker in FIRREA is maintained.
1994 FDIC repeals Rapid Asset Growth rule because the FDIC believes that the brokered deposits provisions of FDICIA addressed concerns about rapid asset growth.
2000 Congress repeals requirement that a deposit broker notify the FDIC and maintain records subject to examination.

Merrill Lynch replaces the CMA Money Market Fund with deposit accounts at its two banks as the liquid investment for the CMA Account.

2002 Promontory launches its CDARs reciprocal deposit product (the placement of deposits by a bank through a bank network and the receipt by the bank of an equal amount of deposits).
2005 FDIC grants “primary purpose” exception to Merrill Lynch for its bank sweep program.
2007 Financial crisis begins.
2008 In response to the financial crisis, FDIC first proposes deposit insurance premiums targeted to brokered deposits.
2011 FDIC amends definition of “core deposit” to exclude brokered deposits.

FDIC publishes study on core and brokered deposits, but does not recommend statutory changes.

2013 Regulators adopt Liquidity Coverage Ratio rule for big banks that include higher run-off rates for most brokered deposits.
2016 FDIC adopts existing insurance premium assessment formula that includes specific assessments on brokered deposits, citing a connection between rapid asset growth funded by brokered deposits and weak or failing depository institutions.

FDIC publishes FAQs on what constitutes a brokered deposit.

2017 FDIC adopts Recordkeeping for Timely Deposit Insurance Determination rule to facilitate prompt payment of FDIC-insured deposits in the event that a large bank fails; accounts eligible for pass-through insurance may utilize “alternative recordkeeping requirements.”
2018 Congress adopts an exception from the definition of deposit broker for certain “reciprocal deposits.”
2019 FDIC amends Recordkeeping rule to clarify actions that must be taken with respect to deposit accounts with “transactional features” that are insured on a pass-through basis.

FDIC Board of Directors approves for publication and comment proposed amendments to its brokered deposit regulations and interpretations.

2020 FDIC proposes changes to its brokered deposit regulations as published in the Federal Register requesting comment by April 10, 2020.

Please feel free to reach out to attorneys in the Brokered Deposits Practice Group for more information.


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