Twenty House Republicans called for the Federal Deposit Insurance Corp. (FDIC) to withdraw its proposed rule to expand the definition of brokered deposits in a letter to FDIC Chair Martin Gruenberg.
Reps. Andy Barr (R-Ky.) and French Hill (R-Ark.) were the lead authors of the letter claiming the rule would harm banks and consumers. They claimed that expanding the rule would result in capturing many deposits that do not pose major liquidity or other risks.
“This proposal will also have negative consequences for banks and everyday investors,” the legislators wrote. “Without justification, the proposal would likely force banks, including ones that do not face restrictions on acceptance of brokered deposits, to significantly alter their liability structures. By increasing the share of deposits for many banks that would be classified as brokered deposits, the proposal also promises to unnecessarily increase deposit insurance assessment rates for those banks.”
The lawmakers also claimed two of Gruenberg’s stated justifications for the rule – the failure of fintech firm Synapse and last year’s bank failures – “are disingenuous as neither of these situations were caused by brokered deposits.” They also argued it is “inappropriate” for Gruenberg to try to “force” a rulemaking, given he announced his intent to resign six months ago.
“If finalized as proposed, this rule would impose broad, poorly crafted, and unnecessary restrictions on brokered deposits and limit the ability of banks, especially community and regional institutions, to access diverse funding sources,” the lawmakers wrote. “This could exacerbate liquidity issues rather than mitigate them, as banks may be forced to turn to more expensive or less reliable funding sources. A more effective regulatory approach from the FDIC would have considered a wider set of factors affecting bank liquidity, such as concentration risk; large, uninsured deposits; and deposit term maturity.”
Nearly 60 national and state bankers associations wrote to the FDIC in early November arguing the agency failed to justify the changes outlined in the rule. The trade groups also argued the proposal did not meet the legal standards required of new rulemakings and raised several policy concerns.