Client Alert

On January 27, 2009, the Board of Directors of the Federal Deposit Insurance Corporation proposed for comment a regulatory change in the way the FDIC administers its statutory restrictions on deposit interest rates paid by banks that are less than “well capitalized.” Under the proposed Rule, such a depository institution generally would be permitted to offer the “national rate” plus 75 basis points. The national rate would be defined for deposits of similar size and maturity, as an average of rates paid by all insured depository institutions and branches for which data is available. For those cases in which the national rate does not represent the “prevailing rate” in a particular market, the depository institution would be permitted to offer the prevailing rate plus 75 basis points. A copy of the Notice of Proposed Rulemaking issued by the FDIC may be found here.

Section 29 of the Federal Deposit Insurance Act provides that an insured depository institution that is not well capitalized may not accept deposits by or through deposit brokers. Notwithstanding this prohibition, Section 29 also provides that an adequately capitalized institution may accept brokered deposits if it obtains a waiver from the FDIC. The purpose of Section 29 generally is to limit the acceptance or solicitation of expensive deposits by insured depository institutions that are not well capitalized. However, the rules and definitions relating to deposits have been difficult for insured depository institutions and examiners to apply across markets. This uncertainty, according to the FDIC, has resulted in the payment of high rates for deposits by less than well capitalized banks. The proposed rule would amend appropriate regulations and clarify all of the definitions relating to deposits.

We will continue to monitor the progress of the FDIC’s rulemaking process and communicate to you any FDIC updates in its rulemaking.

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.