FDIC Issues Proposed Rule on Interest Rate Restrictions


On August 21, 2019, the FDIC published a Notice of Proposed Rulemaking seeking comment on proposed revisions to its regulations relating to interest rate restrictions that apply to less than well-capitalized depository institutions. 


The proposed rule amends the methodology for calculating the national rate and national rate cap for specific deposit products as the higher of (1) the 95th percentile of rates paid by insured depository institutions weighted by each institution’s share of total domestic deposits, or (2) the proposed national rate plus 75 basis points. Under the proposal, less than well-capitalized institutions would be permitted to offer up to 90 percent of the highest rate paid on a particular deposit product in the institution’s local market area. The proposal amends the national rate, the national rate cap and the local rate cap and provides a new process for institutions that seek to offer a local market rate that exceeds the national rate cap.  


The key difference between the proposed national rate and the current national rate is that the calculation of the proposed national rate would be a weighted average based on an institution’s share of total domestic deposits, while the current methodology is based on an institution’s number of branches.


The FDIC also announced changes to its Risk Management Supervision Manual of Examination Policies to clarify for examiners that rate caps apply only to institutions that are less than well capitalized.


The proposal sets forth a dynamic approach to reflect the prevailing deposit interest rate environment and strikes a more appropriate balance between allowing less than well capitalized banks to compete for deposits while ensuring, at the same time, these institutions cannot offer a rate that significantly exceeds the prevailing rate for a product.  


CBA commented on the interest rate restrictions in May. CBA's letter is available here.