Magazine article American Banker

Debate on Brokered Deposits May Heat Up Again in Congress: Banking Bills in House and Senate Address Limits Issue

Magazine article American Banker

Debate on Brokered Deposits May Heat Up Again in Congress: Banking Bills in House and Senate Address Limits Issue

Article excerpt

Debate on Brokered Deposits May Heat Up Again in Congress

Banking Bills in House and Senate Address Limits Issue

The issue of brokered deposits, one of the hottest topics around town a few months back, could heat up again in the next few days.

As Congress enters the final two weeks of its 1984 session--and despite the now-questionable outlook for major banking legislation--one of the decisions lawmakers could grapple with is whether to impose statutory limits on the acceptance of brokered deposits. These are consumer and institutional deposits brought to a bank or thrift via third parties in the form of certificates of deposit.

The Federal Deposit Insurance Corp. and the Federal Savings and Loan Insurance Corp. argue that brokered deposits were a factor in many recent failures and pose a risk to the insurance funds. The agencies earlier this year issued rules that, in effect, would have eliminated deposit brokering, but a U.S. District Court judge blocked implementation of the rules.

The case is now under appeal, but proposals are pending in Congress to impose some kinds of limits on the acceptance of brokered funds, especially by institutions in financial difficulty. There are strong forces at odds over what to do about the situation, and that could make this one of the more interesting banking issues Congress could face before its anticipated adjournment around Oct. 5.

Among the elements working against a legislative attack on brokered deposits this year are comments Friday by Fernand J. St Germain, chairman of the House Banking Committee, that he will no longer consider major banking legislation this year.

Also, the House Government Operations subcommittee on commerce, consumer, and monetary affairs concluded in a report last week that brokered deposits are not a serious threat. A second report, by the same subcommittee, alleges that the regulatory agencies have a poor record of detecting, investigating, and following up on insider abuses that can lead to bank failures.

The two reports were approved by the subcommittee Wednesday by voice vote, but they are still in draft form and likely will be withheld until several days after the full Government Operations Committee votes on whether to approve them. That vote is expected Tuesday. However, Rep. Doug Barnard Jr., D-Ga., the subcommittee chairman, disclosed some of the studies' major findings.

In addition, much of the "crisis atmosphere' that existed several months ago--such as after the much-publicized closing of the Empire Savings and Loan Association in Mesquite, Tex.-- appears to have faded. One observer said it is possible that institutions could be reducing their use of brokered funds in light of that earlier uproar.

And the the Comptroller of the Currency's office, bucking the views of the FDIC and the Bank Board, applauds brokered funds as an important funding tool for banks.

Still, many observers contend that a bill in some form could pass this year and that it could include provisions addressing brokered funds.

Proposed limits on brokered funds are part of the bill, S. 2851, that passed the Senate Sept. 13. Included in this bill is a provision that would limit the aggregate of brokered funds that could be held to 200% of an insured institution's unimpaired capital and surplus or 15% of its total deposits, whichever is less. The bill also would require an institution to meet regulatory net worth requirements.

There also is legislation, more liberal than the Senate-passed bill, introduced in the House in June. Offered by Rep. Robert Garcia and Rep. Charles E. Schumer, two New York Democrats on the House Banking Committee, H.R. 5913 would allow acceptance of brokered funds up to 15% of assets. This more lenient bill is more in line with recommendations from the Comptroller.

In addition to having legislation ready, another factor favoring the imposition of limits this year is the apparent desire by the FDIC and the Bank Board for expanded authority to curb the money brokering business. …

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