A bank carrying a CAMELS 3 can now hold reciprocal deposits without them counting as brokered, and the ceiling for the largest users goes from $5bn to $30bn

The FDIC has written a rule that it says changes nothing, and it is right in the narrow sense and wrong in every other one.

The Corporation filed an interim final rule on Monday morning conforming its brokered deposit regulations at 12 CFR 337.6 to section 902 of the 21st Century ROAD to Housing Act, which took effect on 11 July. Because the statute was effective on enactment, the FDIC states that relative to a post-statutory baseline these amendments have no substantive effect. The regulation was simply seven weeks behind the law. What the law did in July is the news.

Two changes, both large

The first is the ceiling. A qualifying bank can except reciprocal deposits from brokered treatment up to a general cap, and that cap used to be the lesser of $5bn or 20 percent of total liabilities. It is now the sum of three slices: 50 percent of liabilities up to $1bn, 40 percent of the portion between $1bn and $10bn, and 30 percent of the portion between $10bn and $96.33bn. The FDIC works the example itself. A bank with $25bn of total liabilities lands on $8.6bn, against $5bn before.

At the top the number stops. Any institution with $96.33bn or more in total liabilities gets $30bn and no more.

The second change is who may use it at all. The definition of an agent institution used to require a composite condition of outstanding or good, which the FDIC had read as a CAMELS composite of 1 or 2. It now reads 1, 2 or 3, alongside the unchanged requirement to be well capitalized. A bank downgraded to a 3 used to lose the exception and watch its reciprocal deposits reclassify as brokered. It does not any more.

The drafting gap the FDIC found in its own statute

Congress amended the rating language in one place and left it in another.

The first prong of the agent institution test now says CAMELS 1, 2 or 3. The special cap prong, which is the fallback for a bank that has fallen out of the first, still refers to the four quarters preceding the period in which the institution was found not to have a composite condition of outstanding or good. Read together, the FDIC notes, a bank that loses the first prong may have its special cap computed from quarters well before the downgrade that actually cost it.

The document gives its own illustration. A bank cut from 2 to 3 in 2026 and then to 4 in 2030 would take its special cap from its reciprocal holdings in 2025 and 2026, not from the four quarters before the 2030 downgrade. The FDIC says the cap may therefore come out smaller or larger than the recent average, and that no bank is disqualified by the mismatch, because a bank subject to the special cap may keep reciprocal deposits it already holds above the cap. What it may not do is place a new covered deposit while over the line.

A reporting line goes dark

Tucked into the clarifications is a decision about what the public gets to see.

Schedule RC-E Memorandum item 1.g reports total reciprocal deposits. Schedule RC-O item 9 reports brokered reciprocal deposits. When a bank stops qualifying as an agent institution, everything moves into item 9 in a single quarter while the RC-E line barely moves. Because a well capitalized bank now loses that status only by falling below a composite 3, the FDIC writes, an observer reading the two lines together may be able to infer a confidential supervisory rating.

Its answer is to work through the FFIEC to make item 9 confidential. Supplemental Instructions arrive with the 30 September Call Report, and the FDIC anticipates the full instruction update by 31 December. No new line items are needed.

The numbers underneath

As of 31 March there were 4,278 FDIC-insured institutions. Of those, 1,971 reported brokered deposits totalling $1.204 trillion, and 2,089 reported reciprocal deposits totalling $462.8bn. The part of that pile currently classified as brokered is smaller than either figure suggests: 331 institutions reporting $91.9bn.

On assessments the FDIC estimates 16 small institutions, 14 large or highly complex institutions and three more under the brokered deposit adjustment could pay less, and puts the aggregate revenue effect at about $45.8m a year. It also says plainly that it cannot estimate how many institutions will change behaviour or by how much.

The rule went out without prior notice and comment, on a good cause finding that the FDIC was conforming to a statute already in force, and the 30-day delayed effective date was waived. It is effective on publication. Comments are due 30 days after that, on a rule that is already running.