Keeping Deposits Local Act
The Keeping Deposits Local Act is a bill that would change how reciprocal deposits of insured depository institutions are treated under the Federal Deposit Insurance Act (FDIA). Specifically, it replaces the current rule for what portion of reciprocal deposits are not considered funds obtained by or through a deposit broker with a new, tiered safe-harbor formula tied to an institution’s total liabilities. It also revises who qualifies as an “agent institution” by requiring a CAMELS rating of 1, 2, or 3. The overall goal appears to be to encourage local funding by allowing more reciprocal deposits to be counted as non-brokered, particularly for healthier institutions. In practical terms, the bill would allow a larger portion of reciprocal deposits to escape the “brokered deposits” label (which carries regulatory and funding restrictions) depending on the size of an institution’s liabilities and its CAMELS rating, potentially easing some restrictions and supporting locally sourced funding for smaller or regional banks.
Key Points
- 1The bill establishes a tiered safe-harbor for reciprocal deposits not treated as funds obtained by or through a deposit broker, with the following percentages by liability band:
- 2- 50% of the portion up to $1,000,000,000 ($1B)
- 3- 40% of the portion over $1B up to $10,000,000,000 ($10B)
- 4- 30% of the portion over $10B up to $250,000,000,000 ($250B)
- 5- 20% of the portion over $250B up to $1,000,000,000,000 ($1T)
- 6- 2% of the portion over $1T
- 7The safe-harbor applies to “reciprocal deposits of an agent institution,” meaning the portion that would not be considered funds obtained through a deposit broker for purposes of the FDIA.
- 8The definition of “agent institution” is updated to require a CAMELS rating of 1, 2, or 3, rather than the prior criterion described as “composite condition of outstanding or good.”
- 9The measure is titled the “Keeping Deposits Local Act.”
- 10The changes are inserted as amendments to Section 29(i) of the FDIA, adjusting the logic used to determine brokered vs. non-brokered reciprocal deposits.