Magazine article American Banker

FDIC to Withdraw Another Brokered Deposit Restriction

Magazine article American Banker

FDIC to Withdraw Another Brokered Deposit Restriction

Article excerpt

FDIC to Withdraw Another Brokered Deposit Restriction

WASHINGTON -- The Federal Deposit Insurance Corp. is expected next week to drop a proposed rule that would have imposed new record-keeping requirements on money brokers. The rules were the latest in a series of proposed restrictions vigorously opposed by money brokers, firms that package deposits from individuals for placement in banks and thrifts that offer attractive interest rates.

The FDIC's move is likely to signal the end of a long feud between the agency and the money broker industry, which includes giants such as Merrill Lynch. Last December, the agency withdrew a rule that would have limited insurance on brokered deposits at each bank to $100,000 per broker rather than $100,000 per depositor.

After a money broker challenged the rule, a U.S. district court here issued an injunction blocking the agency from imposing it. The FDIC decided not to pursue the case after an appeals court last year upheld the decision.

In addition to dropping the insurance limitation, the FDIC no longer lists in its press releases on failed banks the level and sources of brokered funds at institutions.

The policy change at the agency has come about since L. William Seidman became chairman last fall. His predecessor, William Isaac, vigorously sought limits on brokered deposits, arguing that banks' unlimited access to these funds had encouraged risky lending practices and contributed to bank failures.

The proposal that the FDIC is expected to withdraw at an open meeting on Tuesday would have required banks to keep records of individuals and institutions that place funds through money brokers. In proposing the rule last July, Mr. Isaac said that in bank failures, the rule would make it easier for the FDIC to determine which depositors are eligible for federal insurance.

However, money brokers argued that the plan was a "back-door" attempt to control brokered funds. …

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