FDIC Proposes New Interest Rate Restrictions

The Federal Deposit Insurance Corp. on Tuesday proposed new restrictions on deposit interest rates paid by less-than-adequately capitalized lenders. The current regulation allows “less than well-capitalized” banks to pay interest on nationally solicited deposits at a similar rate paid on a comparable maturity Treasury yield. The regulation was put in place to keep these banks — about 154 of 8,300 FDIC-insured banks nationwide — from paying too much on brokered deposits. The proposed regulation would change that standard to a nationally prevailing deposit rate — calculated from national averages — recognizing “the blurring of local deposit market boundaries brought about by the Internet and other innovations….” The FDIC said the regulation would presume that locally prevailing deposit rates reflect those of the national averages it publishes, but acknowledged the presumption could be overturned, should banks present sufficient contrary evidence. “This proposed regulation would bring much needed concreteness to the administration of these statutory interest rate restrictions,” said FDIC chairman Sheila Bair. “Our expectation is that this additional concreteness would result in lower deposit rates being paid by a number of banks that are less than Well Capitalized and closer adherence to the statute.” Write to Diana Golobay at [email protected].