In early September, the FDIC sent out a financial institution letter requesting comments from Chief Executive Officers and Chief Financial Officers of community banks on interest rate restrictions applicable to institutions that are under capitalized. This letter applies to community banks with total assets less than 1 billion dollars and are FDIC insured.
The FDIC proposed rule changes to the national interest rate, including simplifying the methodology of the national rate and national rate cap for specific deposit products. Changes in the methodology would alter the existing process of creating the national rate by weighing the "average of rates offered on a given deposit product by all reporting institutions, weighted by domestic product share.”1
This proposed rule change also offered new solutions regarding the modification of the current local rate cap calculation process. Some of the changes would include, “allowing institutions that are less than well capitalized to offer up to 90 percent of the highest rate paid on a particular deposit product in the institution’s local market area.”1 These updated rules could affect numerous areas of a local community banks and mainly focuses on the topic of brokered deposits. Over the next few weeks, CEOs and CFOs from across the country will be reaching out the FDIC for their much needed feedback and providing insight into how applicable these ideas are to community banks’ current operations.
It will be interesting to see the feedback of community banks when it comes to this upcoming FDIC rule change. Putting forethought into the impact an alteration to national interest rates could have on our communities is essential. Hopefully, the FDIC can work with community bank leaders to create the best solutions regarding interest rate restrictions and optimize the operations of community banks.
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