HR3234-119

What This Bill Does

The Keeping Deposits Local Act changes how reciprocal deposits are treated under the brokered-deposit rules in section 29 of the Federal Deposit Insurance Act. The reported text creates tiered exemptions so a portion of an agent institution's reciprocal deposits is not treated as funds obtained through a deposit broker: 50 percent of liabilities up to $1 billion, 40 percent of liabilities between $1 billion and $10 billion, and 30 percent of liabilities between $10 billion and $250 billion. Earlier versions also included lower percentages for liabilities above $250 billion and expanded agent-institution eligibility to CAMELS-rated 1, 2, or 3 institutions. The bill requires the FDIC, in consultation with the Federal Reserve Board, to study reciprocal deposits, their use since 2018, stress-period performance, end-user depositors, comparisons to other deposit arrangements, and benefits and risks.

Who Benefits and How

Community banks benefit because reciprocal deposits below the smallest liability tier receive the largest brokered-deposit exclusion. Regional banks benefit from larger exempt reciprocal-deposit capacity across the $1 billion to $10 billion tier. Larger banks up to $250 billion in liabilities benefit from a 30 percent exclusion on that tier. Municipal depositors, business depositors, and nonprofit depositors benefit if local banks can place large deposits through reciprocal networks while keeping customer relationships local. Deposit-placement network providers benefit from increased bank demand for reciprocal-deposit products.

Who Bears the Burden and How

The Federal Deposit Insurance Corporation must apply revised brokered-deposit calculations and complete a study and report to House Financial Services and Senate Banking. Federal Reserve Board staff must consult on the study. Bank examiners must evaluate reciprocal-deposit use under the revised thresholds and any agent-institution eligibility changes. Large banks above the covered tiers receive less proportional relief. The Federal Reserve discretionary surplus fund is reduced by $28 million in the version with the offset.

Key Provisions

• Establishes a 50 percent reciprocal-deposit exclusion for the portion of liabilities at or below $1 billion.
• Establishes a 40 percent exclusion for the portion above $1 billion and at or below $10 billion.
• Establishes a 30 percent exclusion for the portion above $10 billion and at or below $250 billion.
• Expands agent-institution eligibility in some versions to institutions most recently assigned CAMELS ratings of 1, 2, or 3.
• Requires the FDIC and Federal Reserve Board to study reciprocal deposits and report findings to Congress.
• Reduces the Federal Reserve discretionary surplus fund by $28 million in the offset version.