Banks get looser rules on brokered deposits; FDIC study comes too late

What it does

This bill increases the amount of reciprocal deposits (deposits placed through intermediaries at other banks) that small and mid-sized banks can hold without triggering deposit-broker regulations. Banks under $1 billion in liabilities can now exclude 50% of reciprocal deposits from broker-deposit limits; those $1–10 billion can exclude 40%; those $10–250 billion can exclude 30%. The bill also requires the FDIC to study reciprocal deposits and reduces the Federal Reserve's discretionary surplus fund by $28 million, effective 2036.

Why we flagged it

The bill's operative mechanism is a tiered exemption from deposit-broker regulations for reciprocal deposits held by insured depository institutions. This is a deregulatory measure that benefits banks by allowing them to hold larger volumes of brokered deposits without triggering oversight constraints.

• Section 5 reduces the Federal Reserve's discretionary surplus fund by $28M, effective 2036. Unrelated to reciprocal deposits; appears to be a budget offset or separate policy objective.

What the text implies

• Reciprocal deposits are often used by smaller banks to attract large institutional depositors (municipalities, nonprofits, businesses) who exceed FDIC insurance limits at a single bank. Loosening broker-deposit rules may increase systemic reliance on these networks, creating contagion risk if a major reciprocal-deposit intermediary fails.
• The tiered exemption (50%/40%/30%) creates incentives for banks to stay below size thresholds to maximize the exemption percentage, potentially fragmenting the banking system and reducing economies of scale.

The full analysis lists 5 implications of this text.

Who stands to gain

community banks and regional banks (under $250B in liabilities); reciprocal-deposit intermediaries and networks; deposit-broker platforms serving institutional depositors