HR5317-119

What This Bill Does

This bill amends the Federal Deposit Insurance Act's brokered deposit rules. Custodial deposits at an eligible insured depository institution are not treated as brokered deposits up to an amount equal to 20 percent of the institution's total liabilities. The exception is limited to institutions under $10 billion in assets that accept custodial deposits and are either well capitalized with a recent composite rating of 1, 2, or 3, or have obtained a waiver.

The bill defines custodial deposits as deposits placed for the purpose of providing or maintaining deposit insurance for a third party by an insured depository institution, a trust entity controlled by one, a state-chartered trust company, or a plan administrator or investment adviser acting in a formal custodial or fiduciary capacity. The reported text also restricts a covered insured depository institution that is not well capitalized from paying significantly above local or national rates on custodial deposits. A later section reduces the Federal Reserve discretionary surplus fund by $4 million effective September 1, 2036.

Who Benefits and How

Community banks under $10 billion benefit because some custodial deposits can avoid brokered-deposit treatment up to 20 percent of liabilities. Bank-affiliated trust entities and state-chartered trust companies benefit from clearer treatment when they place deposits to maintain third-party deposit insurance. Plan administrators and investment advisers benefit from a clearer path to place fiduciary deposits. Depositors using custodial arrangements benefit if more community banks can accept insured deposits. Community bank funding managers benefit from more flexibility in deposit mix and interest-rate planning.

Who Bears the Burden and How

FDIC supervision staff must monitor eligibility, ratings, capitalization, waivers, liability thresholds, and interest-rate limits. Not-well-capitalized institutions face restrictions on rates paid for covered custodial deposits. Deposit brokers may lose business if qualifying custodial deposits are excluded from brokered-deposit treatment. Federal Reserve accounting staff must account for the $4 million discretionary surplus fund reduction in 2036. Bank compliance officers must document custodial status, third-party insurance purpose, and 20 percent liability limits.

Key Provisions

• Creates a limited exception from brokered-deposit treatment for qualifying custodial deposits.
• Limits the exception to 20 percent of an eligible institution's total liabilities.
• Defines eligible institutions by asset size, ratings, capitalization, and waiver status.
• Defines custodial deposits by formal custodial or fiduciary placement for third-party deposit insurance.
• Restricts above-market interest rates on custodial deposits accepted while not well capitalized.
• Reduces the Federal Reserve discretionary surplus fund by $4 million effective September 1, 2036.