The bill changes the Federal Deposit Insurance Act’s treatment of reciprocal deposits by specifying tiered percentages of an agent institution’s liabilities that can be treated as not obtained “by or through a deposit broker.” It also narrows the supervisory eligibility rule for agent institutions to those most recently rated CAMELS 1–3 and requires an FDIC study on reciprocal deposits with a six‑month reporting deadline.
This matters because the bill alters how banks classify wholesale deposit products that many community banks use to offer insured balances to local customers. By changing the portion of reciprocal deposits excluded from the brokered‑deposit label and who may act as an agent, the bill shifts funding incentives for both sending and receiving banks and imposes new data and compliance requirements on deposit placement networks and supervisors.
At a Glance
What It Does
The bill amends 12 U.S.C. 1831f(i) to carve out specified percentages of reciprocal deposits from the statutory definition of funds obtained by or through a deposit broker, using three liability tiers with different percentage allowances. It also requires the agent institution to have received a CAMELS 1, 2, or 3 rating at its most recent section 10(d) exam and directs the FDIC (with the Fed) to study reciprocal deposits and report within six months of enactment.
Who It Affects
Insured depository institutions that act as agent institutions in reciprocal deposit networks, banks that use deposit placement services to hold or source large insured balances, deposit placement networks and custodial agents, and the FDIC and Federal Reserve as supervisors and data collectors.
Why It Matters
By changing the degree to which reciprocal deposits are treated as non‑brokered, the bill alters capital and liquidity signaling, supervisory classification, and market incentives for sourcing insured deposits — potentially making reciprocal arrangements more attractive to a wider set of banks while raising new supervision and operational questions.
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What This Bill Actually Does
The core statutory change creates three liability bands and allocates a percentage of an agent institution’s reciprocal deposits in each band that the law will not treat as obtained through a deposit broker. Practically, an agent institution can treat half of its reciprocal deposits for the portion of its liabilities up to $1 billion, 40 percent for the slice between $1 billion and $10 billion, and 30 percent for the slice between $10 billion and $250 billion as non‑brokered for purposes of the FDIA’s brokered‑deposit rules.
That structure replaces the previous single‑paragraph rule and forces banks and placement networks to calculate the allowable exclusion on a segmented, proportional basis tied to the agent’s total liabilities.
The bill also tightens who may qualify as an agent institution by requiring that the institution’s most recent section 10(d) examination result include a CAMELS rating of 1, 2, or 3. That makes current supervisory ratings an explicit gating condition for playing the agent role in reciprocal arrangements.
In effect, institutions with more severe supervisory ratings would be ineligible to serve as the agent that aggregates reciprocal deposits.Finally, the FDIC — consulting the Federal Reserve — must study reciprocal deposits and produce a report within six months that covers usage since 2018, breakdowns by institution size, behavior during stress, comparisons to other deposit arrangements, and analyses of end‑user depositors (municipalities, businesses, non‑profits). The study requirement recognizes that reciprocal products have grown in prominence and asks supervisors to provide a data‑driven assessment to the banking committees.
The Five Things You Need to Know
The bill allows an agent bank to treat 50% of reciprocal deposits corresponding to the portion of its total liabilities up to $1,000,000,000 as not brokered.
It allows 40% of reciprocal deposits corresponding to the portion of total liabilities greater than $1,000,000,000 and up to $10,000,000,000 to be treated as not brokered.
It allows 30% of reciprocal deposits corresponding to the portion of total liabilities greater than $10,000,000,000 and up to $250,000,000,000 to be treated as not brokered.
An agent institution must have been assigned a CAMELS rating of 1, 2, or 3 at its most recent section 10(d) examination to qualify as an agent.
The FDIC, in consultation with the Federal Reserve, must issue a study and report within 6 months covering reciprocal deposit usage since 2018, performance under stress, end‑user composition, and comparisons to other deposit arrangements.
Section-by-Section Breakdown
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Short title
Names the measure the ‘Keeping Deposits Local Act.’ This is administrative but signals legislative intent to preserve deposits within local banking markets by adjusting reciprocal deposit rules.
Tiered carve‑outs for reciprocal deposits
This provision replaces the prior paragraph (1) with a three‑tiered formula that ties the allowable non‑brokered portion of reciprocal deposits to discrete bands of an agent institution’s total liabilities (≤$1B; >$1B–≤$10B; >$10B–≤$250B) and sets percentages (50%, 40%, 30%). Operationally, banks and placement networks must compute the portion of total liabilities that falls in each band and apply the applicable percentage to determine how much reciprocal deposit volume will not be treated as brokered. Because the formula stops at $250 billion, institutions with total liabilities above that cap should expect different or zero carve‑outs for amounts above $250 billion unless otherwise interpreted by regulators.
Supervisory gate for agent institutions (CAMELS 1–3)
The bill amends the agent institution definition to require that, when most recently examined under section 10(d), the institution was assigned a CAMELS rating of 1, 2, or 3 (or equivalent). That creates a clear, exam‑based eligibility test for acting as an agent in reciprocal programs and ties agent status to recent supervisory outcomes, which supervisors will need to operationalize when certifying or documenting an institution’s agent role.
FDIC study and report requirements
The FDIC, consulting with the Fed, must analyze reciprocal deposit usage dating back to 2018, including size breakdowns, performance during stress, comparison with other deposit arrangements, and end‑user composition, using both quantitative and qualitative data. The agency has six months from enactment to report to the House Financial Services Committee and the Senate Banking Committee. The content and data scope required will force the FDIC to collect granular placement and end‑user information from placement networks and banks if those data are not already centralized.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Community banks that participate in reciprocal deposit networks — they can have a larger share of incoming reciprocal balances treated as non‑brokered, which reduces the likelihood those funds will trigger brokered‑deposit treatment that can constrain growth or draw supervisory scrutiny.
- Deposit placement networks and agent institutions that meet the CAMELS gating requirement — clearer eligibility and larger allowable carve‑outs improve the commercial utility of reciprocal products and may expand market demand.
- Municipal and nonprofit treasurers and other end‑users seeking fully insured deposits — broader acceptance by banks could increase local placement options and the ability to keep insured balances in local banking relationships.
Who Bears the Cost
- Large agent institutions and national banks with total liabilities above $250 billion — the statutory carve‑outs explicitly stop at $250 billion, leaving uncertainty or no exclusion for amounts above that cap and potentially reducing the relative attractiveness of reciprocal arrangements for the largest institutions.
- Supervisory agencies (FDIC and Federal Reserve) — the study requirement and the need to monitor compliance with segmented liability calculations create additional data collection, analysis, and enforcement burdens.
- Smaller banks that lose deposit pricing power — if the bill increases supply of insured local alternatives, some community banks could face pricing pressure or competition for retail deposits that previously were sticky.
Key Issues
The Core Tension
The bill balances two legitimate goals — preserving and routing insured deposits to local banks (supporting local lending and community banking) versus preserving supervisory safeguards that treat brokered or wholesale deposits as potentially less stable. Expanding non‑brokered treatment and widening agent eligibility promotes local deposit retention and market access, but it simultaneously reduces the information‑ and risk‑sensitivity of the brokered‑deposit framework, increasing the potential for mispriced stability and supervisory blind spots.
The bill reduces the statutory stigma attached to reciprocal deposits by permitting sizable portions to be treated as non‑brokered, but it embeds practical and supervisory complications. The segmented calculation tied to an agent’s total liabilities requires precise, contemporaneous measurement and coordination between receiving banks and placement networks.
Regulators will need to decide whether total liabilities means consolidated holding‑company liabilities or the depository’s standalone liabilities, how to handle rapid balance changes, and how to audit the proportional calculations. The statutory stop at $250 billion leaves a coverage gap for very large institutions; absent regulatory guidance, that gap will create legal uncertainty and competing interpretations.
Linking agent eligibility to the most recent CAMELS 1–3 rating creates a bright‑line supervisory gate but raises questions: CAMELS ratings can lag real‑time risk, and including CAMELS 3 (a composite that can reflect supervisory concerns) allows institutions with material weaknesses to serve as agents. The study’s six‑month deadline is short given the breadth of required analyses and the likely need to aggregate proprietary placement and end‑user data from multiple private actors; the FDIC may produce an interim or limited report rather than the fully granular analysis Congress requested.
Finally, the change shifts market incentives — making reciprocal deposits relatively more attractive could reduce reliance on other wholesale funding but also obscure deposit run risk if deposits that behave like brokered funding are not treated as such for supervisory purposes.
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