Client Alert

On May 29, 2009, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) issued a final rule changing the way the FDIC administers its statutory restrictions on the deposit interest rates paid by banks that are less than well capitalized. The full text of the final rule is available here (PDF).

While the Federal Deposit Insurance Act (the "Act") requires the FDIC to prevent banks that are less than well capitalized from soliciting deposits at interest rates that significantly exceed prevailing rates, the provisions of the Act have proved difficult to interpret and enforce. The FDIC's current regulation ties permissible interest rates paid by these banks on some deposits solicited nationally to the comparable maturity Treasury yield, and ties permissible interest rates on deposits solicited locally to undefined prevailing local interest rates. Under the amended regulations, banks generally will be permitted to offer the "national rate" plus 75 basis points. The "national rate" will be defined, for deposits of similar size and maturity, as a simple average of rates paid by all insured depository institutions and branches for which data are available.

The newly issued final rule further defines the nationally prevailing deposit rates as a direct calculation of certain national averages, as computed and published by the FDIC based on data available to it. Under the new rule reliance on the Treasury yields in the regulation is discontinued. In recognition of the blurring of local deposit market boundaries brought about by the Internet and other innovations, the final rule also establishes a presumption that locally prevailing deposit rates equal the national rates published by the FDIC. This presumption may be overturned by evidence presented by banks to the FDIC.

Again, this new rule applies only to banks that are less than well capitalized. According to FDIC data published in connection with the final rule as of first quarter 2009, there were 248 banks that reported being less than well capitalized.

The new rule will be effective as of January 1, 2010. In addition, the FDIC will immediately begin publishing national rates and caps allowing institutions covered by the new rule to avail themselves of these rates as a safe harbor for complying with the new restrictions.

As always, if you have any questions about this or another banking matter, please contact a member of the Banking and Financial Institutions Team at Womble Carlyle Sandridge & Rice, PLLC. Readers are urged to consult with their regular contacts at Womble Carlyle or Steve Dunlevie at 404-888-7401, Betty Temple at 864-255-5415,  Richard Hills at 404-888-7475, David Adams at 404-879-2492, or Robert Ralls at 404-879-2481.