September 2016
On Tuesday, a bipartisan group of legislators expressed their support for a bill (H.R. 4116) that would attempt to codify and expand a measure regarding reciprocal deposits that was included in FDIC’s final rule on small bank deposit insurance assessments. The House Financial Services Subcommittee on Financial Institutions and Consumer Credit held a legislative hearing featuring testimony and discussion on a series of consumer banking proposals that have been introduced and referred to the committee, including H.R. 4116. Congressional committees sometimes hold these hearings prior to scheduling more formal markups and votes on legislation. 

H.R. 4116, introduced by Reps. Gwen Moore (D-WI) and Tom Emmer (R-MN), no longer would designate reciprocal deposits as brokered deposits in certain circumstances, thereby permitting some banks to meet capital requirements more easily and increasing their ability to lend. In order to be eligible for this new deposit standard, banks must have either a 1 or 2 CAMELS rating, or the total amount of reciprocal deposits must not exceed $10 billion or 20 percent of the institution’s total liabilities, whichever is lesser.

FDIC earlier this year finalized a measure in its small bank deposit insurance assessment rule that allows CAMELS 1 or 2 banks to deduct reciprocal deposits from brokered deposits when calculating their brokered deposit ratio. According to a hearing witness from the Heritage Foundation, FDIC has not yet reached a conclusion about the overall risks associated with permitting banks to use reciprocal deposits to support lending. Yet Rep. Emmer, an original cosponsor of the bill, affirmed his support of using reciprocal deposits in this context. He stated, “Reciprocal deposits are safe, practical, core-like deposits.” 

H.R. 4116 has 17 bipartisan cosponsors, many of whom sit on the House Financial Services Committee, as well as the support of major banking trade associations.

Source: “Panel Has Bipartisan Liking for New Treatment of Bank Deposits.” CQ News. September 27, 2016. Available upon request.

“FDIC Deposit Insurance Assessments for Small Banks: Summary of Final Rule.” Independent Community Bankers of America. April 26, 2016. Available here.

“H.R. 4116 - To amend the Federal Deposit Insurance Act to ensure that the reciprocal deposits of an insured depository institution are not considered to be funds obtained by or through a deposit broker, and for other purposes.” U.S. Library of Congress. Accessed September 28, 2016. Available here