Financial industry groups have called for an extension of the comment period related to brokered deposit rules proposed by the Federal Deposit Insurance Corp. in July.
A coalition of 11 industry groups requested an additional 60 days to submit comments on the request for information, in addition to the 60-day comment period typically included in the FDIC’s rulemaking process.
The comment period is intended to gather data that affects stability and franchise value across different deposit types. The data will then be used to fine-tune deposit insurance calculations, strengthen liquidity regulations and optimize other regulatory measures, the groups said in a letter to the FDIC on Wednesday.
“It is essential that the FDIC has a robust and accurate data set on which to work and that any additional reporting requirements are reasonable and feasible for banks of all sizes and their affiliates, particularly their affiliated broker-dealers, and their customers,” the trade groups wrote. “Given the importance of the RFI and its impact on future changes, the association believes that an additional 60 days will allow the association and its members the time necessary to provide responses and data that adequately address the questions and issues raised in the RFI,” the letter said.
The letter was signed by representatives of the American Bankers Association, National Fintech Council, Banking Policy Institute, Electronic Trading Association, Financial Services Forum, Financial Technology Association, National Association of Independent Community Bankers, Innovative Payments Association, International Banker Association, National Industrial Bankers Association, and the Securities Industry and Financial Markets Association.
The Group emphasized the open-ended nature of the RFI and the technical nature of the information requested, and said substantial research would be required to address the important issues raised.
The RFI covers a variety of topics, including current deposit monitoring methods, potential new account types and their impact on deposit insurance, the need for additional data collection, etc. Additionally, the industry groups emphasized that the FDIC is seeking broad feedback without specifying the type or format of data that would be recommended.
“The RFI requests what additional data should be considered for collection, including more detailed data or data reported more frequently, but does not provide clear guidance on the type or format of data that should be considered,” the industry groups wrote.
The FDIC proposed last month to restrict insufficiently capitalized financial institutions from accepting brokered deposits, but well-capitalized institutions could apply to the FDIC for an exemption to accept brokered deposits.
The proposed rule aims to expand the definition of a deposit broker while also effectively reversing rule changes from 2020. The reversal reinstates restrictions on less-capitalized banks’ access to volatile or “hot money” deposits that were relaxed under previous rules.
Brokered deposits have drawn criticism because they can make risky banks’ books look stronger when long-term customers withdraw their deposits. But critics say they can lead to unpredictable short-term profits and losses. Brokers may bail out banks if they get into trouble, but they usually demand higher returns, putting banks at a higher cost.
The FDIC argues that the failure of banks that rely heavily on securities deposits would place a greater burden on the Deposit Insurance Fund.
“Recent events also highlight the uncertainty surrounding third-party financing arrangements,” FDIC Chairman Martin Grunberg said in a July statement, citing the bankruptcy of cryptocurrency firm Voyager Digital in 2022 and the collapse of First Republic Bank last year as examples.
The FDIC’s board of directors announced the proposal by a 3-2 vote.
Earlier this month, ABA C.E.O. Rob Nichols He said the proposed rules would “limit access to sources of liquidity while penalizing banks for pursuing sources of capital that enable them to meet the needs of their communities.”
Nichols also addressed the timing of the FDIC’s transition, saying Grunberg will step down once his successor is confirmed by the Senate.
“Given the impending leadership transition at the FDIC, we question the need to move forward with a series of unrelated regulatory changes with an unusually short comment period, about which there is clearly no consensus within the agency,” Nichols said.
