[Federal Register Volume 83, Number 187 (Wednesday, September 26, 2018)]
[Proposed Rules]
[Pages 48562-48569]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-20303]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 83, No. 187 / Wednesday, September 26, 2018 / 
Proposed Rules

[[Page 48562]]



FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 327 and 337

RIN 3064-AE89


Limited Exception for a Capped Amount of Reciprocal Deposits From 
Treatment as Brokered Deposits

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking and request for comments.

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SUMMARY: The FDIC seeks comment on a notice of proposed rulemaking to 
conform its current regulations that implement brokered deposits and 
interest rate restrictions with recent changes to section 29 of the 
Federal Deposit Insurance Act made by section 202 of the Economic 
Growth, Regulatory Relief, and Consumer Protection Act related to 
reciprocal deposits, which took effect on May 24, 2018. Conforming 
amendments to the FDIC's regulations governing deposit insurance 
assessments are also being proposed. This rulemaking is the first part 
of a two-part effort to revisit the brokered deposit rules. The FDIC is 
currently working on the second part, which is planned for later this 
year and which will seek comment on the brokered deposit regulations 
more generally. We encourage comments not related to the implementation 
of section 202 to be submitted as part of the broader rulemaking 
effort.

DATES: Comments on the rules must be received by October 26, 2018.

ADDRESSES: You may submit comments, identified by RIN 3064-AE89, by any 
of the following methods:
     Agency Website: http://www.FDIC.gov/regulations/laws/federal/.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th 
Street NW, Washington, DC 20429.
     Hand Delivery/Courier: Comments may be hand-delivered to 
the guard station at the rear of the 550 17th Street NW building 
(located on F Street) on business days between 7:00 a.m. and 5:00 p.m.
     Email: comments@FDIC.gov.
    Instructions: Comments submitted must include ``FDIC'' and ``RIN 
3064-AE89.'' Comments received will be posted without change to http://www.FDIC.gov/regulations/laws/federal/, including any personal 
information provided.

FOR FURTHER INFORMATION CONTACT: Division of Risk Management 
Supervision--Thomas F. Lyons, Chief, Policy and Program Development, 
(202) 898-6850, tlyons@fdic.gov; Judy Gross, Senior Policy Analyst, 
(202) 898-7047, jugross@fdic.gov; Division of Insurance and Research--
Ashley Mihalik, Senior Policy Analyst, (202) 898-3793, 
amihalik@fdic.gov; Legal Division--Vivek V. Khare, Counsel, (202) 898-
6847, vkhare@fdic.gov; Thomas Hearn, Counsel, (202) 898-6967; 
thearn@fdic.gov.

SUPPLEMENTARY INFORMATION:

I. Policy Objectives

    The policy objective of this proposed rule is to implement section 
202 of the Economic Growth, Regulatory Relief, and Consumer Protection 
Act, codified in 12 U.S.C. 1831f, which took effect on May 24, 2018.\1\ 
The main effect of the legislation and this proposed rule is to permit 
FDIC-insured financial institutions, under certain circumstances, to 
except certain amounts of reciprocal deposits from treatment as 
brokered deposits.
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    \1\ Public Law 115-174, 132 Stat. 1296-1368 (2018).
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II. Background

    The Economic Growth, Regulatory Relief, and Consumer Protection Act 
(the Act) was enacted on May 24, 2018.\2\ Section 202 of the Act amends 
section 29 of the Federal Deposit Insurance Act (FDI Act) \3\ to except 
a capped amount of reciprocal deposits from treatment as brokered 
deposits for certain insured depository institutions. In addition, 
section 202 ensures that the interest rate restrictions in section 29 
remain applicable to any deposit, including reciprocal deposits, 
whether or not they fall under the limited exception. Section 202 was 
effective immediately upon enactment.
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    \2\ Public Law 115-174, 132 Stat. 1296-1368 (2018).
    \3\ See 12 U.S.C. 1831f.
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    As more fully discussed below, well-capitalized institutions are 
not restricted from accepting or soliciting brokered deposits and have 
no restrictions on the rates they pay on deposits. However, under 
section 29, less than well-capitalized institutions may not accept or 
solicit brokered deposits and may not offer rates on any deposits that 
are significantly higher than the prevailing rates in the institution's 
normal market area. Section 29 defines the term ``deposit broker'' and 
provides a list of exclusions to that term. Funds obtained through a 
deposit broker are considered brokered deposits. Section 202 amends 
section 29 to effectively provide that a capped amount of reciprocal 
deposits will not be considered funds obtained through a deposit broker 
for certain insured depository institutions, and thus such deposits 
will be non-brokered. Reciprocal deposits that do not meet the section 
202 exception are brokered deposits under section 29.
    At this time, institutions with reciprocal deposits that meet 
section 202's limited exception can refer to the Supplemental 
Instructions provided as part of the June 30, 2018, Call Report 
Instructions for information on reporting reciprocal deposits under the 
new law.\4\ The Federal Financial Institutions Examination Council 
(FFIEC) has indicated that it anticipates issuing additional 
instructions regarding the application of section 202 to reciprocal 
deposits for purposes of reporting in the Call Report for September 30, 
2018.
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    \4\ FFIEC Supplemental Instructions, Call Report Date, p. 2, 
June 30, 2018. https://www.fdic.gov/news/news/financial/2018/fil18039a.pdf.
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    This rulemaking is the first part of a two-part effort to revisit 
the brokered deposit rules. The FDIC is currently working on the second 
part, which is planned for later this year and will seek comment on the 
brokered deposit regulations more generally.

A. Section 29 of the FDI Act

    Under section 29 of the FDI Act, an insured depository institution 
is restricted from accepting deposits by or through a deposit broker 
unless the institution is well capitalized for Prompt Corrective Action 
(PCA)

[[Page 48563]]

purposes.\5\ The FDIC may waive this restriction if the insured 
depository institution is adequately capitalized; however, the 
restriction cannot be waived if the institution is undercapitalized.\6\ 
Section 29 also imposes restrictions on the deposit interest rates that 
an insured depository institution may offer if the institution is not 
well capitalized.\7\ These interest rate restrictions cannot be waived. 
Section 337.6 of the FDIC's Rules and Regulations implements section 29 
of the FDI Act.\8\ Through this regulation, the FDIC has largely 
tracked the statutory definition of ``deposit broker'' and its 
exceptions.
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    \5\ 12 U.S.C. 1831f(a).
    \6\ 12 U.S.C. 1831f(c).
    \7\ 12 U.S.C. 1831f.
    \8\ 12 U.S.C. 1831f(a).
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    A ``deposit broker,'' as defined by section 29 of the FDI Act, 
includes ``any person engaged in the business of placing deposits, or 
facilitating the placement of deposits, of third parties with insured 
depository institutions or the business of placing deposits with 
insured depository institutions for the purpose of selling interests in 
those deposits to third parties. . . .'' Under the FDIC's regulations, 
a ``brokered deposit'' is thus defined as a deposit accepted through a 
``deposit broker.'' \9\ The definition of ``deposit broker'' is subject 
to ten statutory exceptions in section 29 \10\ and one regulatory 
exception.\11\
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    \9\ 12 CFR 337.6(a)(2).
    \10\ 12 U.S.C. 1831 f(g)(2), (i).
    \11\ 12 CFR 337.6(a)(5)(ii)(J); see also, 57 FR 23933-01.
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B. Reciprocal Deposits

    The reciprocal deposit arrangement is based upon a network of banks 
that place funds at other participating banks in order for depositors 
to receive insurance coverage for the entire amount of their 
deposits.\12\ In these arrangements, institutions within the network 
are both sending and receiving identical amounts of deposits 
simultaneously. Because reciprocal arrangements can be complex, and 
involve numerous banks, they are often managed by a third-party network 
sponsor. As a result of this arrangement, the institutions themselves 
(along with the network sponsors) are ``in the business of placing 
deposits, or facilitating the placement of deposits, of third parties 
with insured depository institutions,'' \13\ and the involvement of 
deposit brokers within the reciprocal network means the deposits are 
brokered deposits.\14\
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    \12\ See FDIC Advisory Opinion No. 03-03 (July 29, 2003).
    \13\ Excerpt of the definition of ``deposit broker.'' 12 U.S.C. 
1831f.
    \14\ See FDIC's 2011 Study on Core and Brokered Deposits, issued 
July 2011, Sections IV.E. and VIII.E.
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    For assessment purposes, reciprocal deposits have been treated more 
favorably than other types of brokered deposits. In 2009, through 
rulemaking, the FDIC amended its risk-based assessment rate methodology 
for small institutions, i.e., insured depository institutions with less 
than $10 billion dollars in total assets.\15\ In that rulemaking, the 
FDIC added an ``adjusted brokered deposit ratio'' that applied to small 
institutions that were well capitalized and well rated. This ratio 
measured the extent to which significant reliance on brokered deposits 
helped to fund rapid asset growth. After consideration of comments 
received in response to the proposed rule, reciprocal deposits were not 
included as part of the adjusted brokered deposit ratio. In its final 
rule, the FDIC stated that ``[it] recognizes that reciprocal deposits 
may be a more stable source of funding for healthy banks than other 
types of brokered deposits and that they may not be as readily used to 
fund rapid asset growth.'' \16\ When the FDIC updated its risk-based 
assessment rate methodology for established small banks in 2016, it 
replaced the adjusted brokered deposit ratio with a brokered deposit 
ratio.\17\ The new ratio, which measures significant reliance on 
brokered deposits (rapid asset growth is considered as a separate 
measure) and applies to all established small banks, continues to 
exclude reciprocal deposits for institutions that are well capitalized 
and well rated.\18\
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    \15\ 79 FR 9525 (March 4, 2009).
    \16\ Id. at 9532.
    \17\ Generally, an established small bank is a small institution 
that has been federally insured for at least five years. See 81 FR 
32180 (May 20, 2016).
    \18\ See 12 CFR 327.16(a)(1)(ii).
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III. Discussion of Treatment of Reciprocal Deposits Under the Act

    Prior to enactment of the Act, all reciprocal deposits were 
classified as brokered deposits.\19\ Section 202 of the Act amends 
section 29 of the FDI Act to except a capped amount of reciprocal 
deposits from treatment as brokered deposits for certain insured 
depository institutions. Section 202's amendments took effect upon 
enactment on May 24, 2018, and the FDIC is proposing to amend its 
regulations to conform with the statutory amendments.
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    \19\ See FDIC's 2011 Study on Core and Brokered Deposits, issued 
July 2011, Section IV.
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    Section 202 defines ``reciprocal deposits'' as ``deposits received 
by an agent institution through a deposit placement network with the 
same maturity (if any) and in the same aggregate amount as covered 
deposits placed by the agent institution in other network member 
banks.'' Network member banks may receive other deposits through a 
network such as (1) deposits received without the institution placing 
into the network a deposit of the same maturity and same aggregate 
amount (sometimes referred to as ``one-way network deposits'') and (2) 
deposits placed by the institution into the network where the deposits 
were obtained, directly or indirectly, by or through a deposit broker. 
Such other network deposits meet the definition of brokered deposits 
but would not meet the definition of reciprocal deposits and thus would 
not be eligible to be excepted from an institution's brokered deposits 
under section 202.
    In this rulemaking, the FDIC is proposing to implement section 
202's limited exception by incorporating these statutory definitions 
into section 337.6(e)(2) of the brokered deposit rules, without change. 
These definitions must be satisfied in order for a capped amount of 
reciprocal deposits to be excepted from treatment as brokered deposits.

A. Deposit Placement Network, Covered Deposits, and Network Member Bank

    The term ``deposit placement network'' is defined in section 202 as 
a network in which an insured depository institution participates, 
together with other insured depository institutions, for the processing 
and receipt of reciprocal deposits. Institutions that are members of 
the deposit placement network are ``network member banks.''
    The deposits that an ``agent institution'' places at other banks in 
return for reciprocal deposits are termed ``covered deposits'' under 
section 202. The term covered deposit is defined as a deposit that (1) 
is submitted for placement through a deposit placement network and (2) 
does not consist of funds that were obtained for the agent institution, 
directly or indirectly, by or through a deposit broker before 
submission for placement through the deposit placement network.

B. Agent Institution

    Consistent with section 202, proposed section 337.6(e)(2) defines 
``agent institution'' as an insured depository institution that places 
a covered deposit through a deposit placement network at other insured 
depository institutions in amounts that are less than or equal to the 
standard maximum deposit insurance amount, and specifies the

[[Page 48564]]

interest rate to be paid for such amounts, if the insured depository 
institution:
     Is well capitalized \20\ and has a composite condition of 
outstanding (CAMELS ``1'') or good (CAMELS ``2'') when most recently 
examined under section 10(d) of the FDI Act (described as ``well 
rated''); \21\
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    \20\ See generally, 12 CFR part 325, subpart B or 12 CFR part 
324, subpart H (FDIC); 12 CFR part 208 (Board of Governors for the 
Federal Reserve System); 12 CFR part 6 (Office of the Comptroller of 
the Currency). 12 U.S.C. 1831o. ``Well capitalized'' is already 
defined in 12 CFR 337.6(a)(3)(i).
    \21\ The effective date of a CAMELS composite rating is the date 
of written notification to the institution by its primary federal 
regulator or state authority of its supervisory rating. See e.g., 12 
CFR 327.4(f).
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     has obtained a waiver pursuant to section 29(c) of the FDI 
Act; or
     does not receive an amount of reciprocal deposits that 
causes the total amount of reciprocal deposits held by the agent 
institution to be greater than the average of the total amount of 
reciprocal deposits held by the agent institution on the last day of 
each of the four calendar quarters preceding the calendar quarter in 
which the agent institution was found not to have a composite condition 
of outstanding or good or was determined to be not well capitalized.

C. Caps Applicable to Agent Institutions

    Consistent with section 202, under the proposed regulation, an 
``agent institution'' can except reciprocal deposits from being 
classified as brokered deposits up to its applicable statutory caps, as 
explained below.
General Cap
    An agent institution may except reciprocal deposits up to the 
lesser of the following amounts (referred to as the general cap) from 
being classified as brokered deposits: \22\
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    \22\ See FFIEC Supplemental Instructions, Call Report Date, June 
30, 2018 https://www.fdic.gov/news/news/financial/2018/fil18039a.pdf.
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     $5 billion or
     An amount equal to 20 percent of the agent institution's 
total liabilities.
    Reciprocal deposits in excess of the general cap, as well as those 
reciprocal deposits that do not meet section 202's limited exception, 
are brokered deposits.
Special Cap
    A special cap applies if the institution is either not well rated 
or not well capitalized. In this case, the institution may meet the 
definition of ``agent institution'' by maintaining its reciprocal 
deposits at or below the special cap, which is the average amount of 
reciprocal deposits held at quarter-end during the last four quarters 
preceding the quarter that the institution fell below well capitalized 
or well rated. The FDIC notes that section 202 does not provide a date 
by which an institution must demonstrate that its amount of reciprocal 
deposits are within the special cap. The FDIC is considering evaluating 
whether an institution's reciprocal deposits meet the special cap based 
on information reported in its Call Reports. For an institution that is 
determined to fall below well rated, the FDIC would evaluate its 
compliance with the special cap based on Call Report data submitted for 
the reporting date immediately following when the determination is 
made. The FDIC seeks comment on any unintended consequences this may 
cause to institutions.
Application of Statutory Caps
    Below are descriptions of how the two statutory caps would apply to 
an agent institution based upon its capital and composite ratings.
    1. Well capitalized and well rated. Institutions that are both well 
capitalized and well rated can have non-brokered reciprocal deposits up 
to the general cap. Any amount of reciprocal deposits over the general 
cap will no longer meet the limited exception and therefore that amount 
would be considered to be ``brokered deposits.'' Well-capitalized 
institutions can accept all brokered deposits, including reciprocal 
deposits that are brokered deposits, without any restrictions.
    2. Not well capitalized or not well rated. Institutions that are 
either not well capitalized or not well rated are subject to the lesser 
of either the special cap or the general cap. The amount of reciprocal 
deposits within the institution's applicable cap would not be 
considered brokered deposits. In no event, however, can an 
institution's non-brokered reciprocal deposits exceed the general cap. 
With respect to an institution that is well capitalized but not well 
rated, if it received reciprocal deposits above the special cap, it 
would no longer meet the definition of ``agent institution.'' In this 
situation, an institution would need to decide whether to (1) retain 
all of its reciprocal deposits and report them as brokered deposits 
(assuming the institution was well capitalized \23\), or (2) lower the 
amounts of its reciprocal deposits to within the special cap by the end 
of the quarter that it is notified that it is no longer well rated, in 
which case all of the institution's reciprocal deposits could be 
excepted from its brokered deposits. An institution that is less than 
adequately capitalized or adequately capitalized without a waiver would 
have the option to lower its reciprocal deposits to within the special 
cap by the end of the quarter for which, in the ordinary course, the 
change in capital status is reported, or work with its primary federal 
regulator to establish a supervisory plan for addressing reciprocal 
deposits. The FDIC requests comment on other ways an institution that 
is not well rated or not well capitalized could manage its holdings of 
reciprocal deposits in excess of the special cap, consistent with the 
applicable provisions of section 202 so that its reciprocal deposits 
would be treated as non-brokered.
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    \23\ 12 U.S.C. 1831f(c). Institutions that are adequately 
capitalized may seek a waiver from the FDIC to accept brokered 
deposits. Waivers under section 29(c) are only available (1) on a 
case-by-case basis, (2) upon application to the FDIC, (3) to 
adequately capitalized institutions, and (4) upon a finding that the 
acceptance of such deposits does not constitute an unsafe or unsound 
practice with respect to such institution. Less than adequately 
capitalized institutions (undercapitalized or significantly 
undercapitalized institutions) are not eligible to seek a waiver 
from the FDIC.
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D. Example of Section 202's Applicability

    A well rated and well capitalized community bank (``the Bank'') has 
a banking relationship with its local municipality. The municipality 
wishes to place deposits in excess of the standard maximum deposit 
insurance amount at the Bank. In an effort to provide insurance 
coverage for the entire amount of the deposit, the Bank offers the 
municipality the option to place its deposits through a deposit 
placement network at a specified interest rate.
    In this case, the Bank is an ``agent institution'' because it is 
both well rated and well capitalized. After establishing itself as an 
``agent institution,'' the Bank must next determine whether the 
municipal deposits that it wishes to submit into the deposit placement 
network are covered deposits. If the deposits are placed directly by 
the municipality, without any assistance of a third-party, the deposits 
meet the definition of a ``covered deposit.''
    Next, if the municipal deposits are ``covered deposits,'' to meet 
the statutory definition of ``reciprocal deposits,'' the institution 
must receive deposits with the same maturity (if any) and in the same 
aggregate amount as the covered deposits it placed with other network 
banks. If the definitional framework set forth in section 202 is 
satisfied, the Bank may except an amount of the deposits it receives 
from

[[Page 48565]]

the deposit network--up to the general cap--from treatment as brokered 
deposits.
    In contrast to the example described above, if the Bank places 
deposits obtained by or through the assistance of deposit broker into a 
deposit placement network, then those deposits would not meet the 
definition of a ``covered deposit.'' As a result, deposits that the 
Bank receives in exchange for its brokered deposits from other network 
member banks would not qualify as ``reciprocal deposits'' and therefore 
would not meet section 202's limited exception.

E. Conforming Assessments Amendments

    The FDIC is proposing to make conforming amendments to its 
assessments regulations to be consistent with the statutory definition 
of reciprocal deposits. Prior to enactment of section 202, all 
reciprocal deposits as defined in the assessment regulations met the 
definition of brokered deposits. Because section 202 excepts certain 
reciprocal deposits from treatment as brokered deposits, the FDIC is 
proposing to replace the current definition of ``reciprocal deposits'' 
in section 327.8(q) with a new term, ``brokered reciprocal deposit.'' A 
``brokered reciprocal deposit'' is a ``reciprocal deposit'' as defined 
under section 202, and proposed section 337.6(e)(2)(v), that does not 
meet the statute's limited exception (e.g., deposits over the 
applicable caps discussed above). The FDIC is also proposing to make 
conforming amendments to sections 327.16(a)(1)(ii) and 327.16(e)(3), 
which reference reciprocal deposits.
    For assessment purposes, ``brokered reciprocal deposits'' will 
continue to be excluded from the brokered deposit ratio for established 
small institutions that are well capitalized and well rated.\24\ For 
new small banks and large and highly complex banks that are less than 
well capitalized or not well rated, ``brokered reciprocal deposits'' 
will continue to be included in an institution's total brokered 
deposits for the brokered deposit adjustment.\25\
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    \24\ The brokered deposit ratio may increase assessment rates 
for established small banks with brokered deposits greater than 10 
percent of total assets. Since 2009, when the ratio was first used 
as one of the financial measures used to determine an established 
small bank's assessment rate, the ratio has excluded reciprocal 
deposits from brokered deposits if the bank is well capitalized and 
well rated. See 12 CFR 327.16(a)(1)(ii).
    \25\ The brokered deposit adjustment applies to all new small 
institutions in Risk Categories II, III, and IV, and all large and 
all highly complex institutions, except large and highly complex 
institutions (including new large and new highly complex 
institutions) that are well capitalized and have a CAMELS composite 
rating of 1 or 2. The brokered deposit adjustment can increase 
assessments for institutions that have brokered deposits in excess 
of 10 percent of domestic deposits. See 12 CFR 327.16(e)(3).
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    The FDIC notes that the statutory definition of ``reciprocal 
deposit'' is substantially similar to the current regulatory definition 
in Part 327, with one difference. Section 202's definition of 
``reciprocal deposits'' is limited to funds obtained from a deposit 
placement network in exchange for funds placed into the network that 
meet the definition of ``covered deposits,'' which excludes funds that 
were obtained, directly or indirectly, by or through a deposit broker 
before submission for placement through the deposit placement network. 
As such, funds that do not meet the statutory definition of 
``reciprocal deposit'' because they are obtained in exchange for funds 
that the institution acquired by or through a deposit broker are 
``brokered deposits'' and would not meet the proposed definition of 
``brokered reciprocal deposits.''
    The FDIC seeks comment on the extent to which institutions may be 
affected by the FDIC's proposal to conform the definition of reciprocal 
deposits for assessment purposes with the definition provided in 
section 202.

F. Interest Rates

    Section 202 applies the statutory interest rate restrictions under 
section 29 to all reciprocal deposits. More specifically, section 202 
amends section 29(e) of the FDI Act by ensuring that the interest rate 
restrictions apply to less than well capitalized banks that accept 
reciprocal deposits.\26\ As a result, section 202 confirms that the 
current statutory and regulatory rate restrictions for less than well 
capitalized institutions continue to apply to any deposit, including a 
reciprocal deposit that is a covered deposit.\27\ To ensure consistent 
treatment of the interest rate restrictions under section 202, the FDIC 
is proposing conforming amendments to section 337.6(b)(2)(ii) of its 
rules and regulations.
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    \26\ 12 U.S.C. 1831f(h).
    \27\ 12 U.S.C. 1831f(g)(3) and (e).
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IV. Expected Effects

    As noted previously, section 202 of the Act took effect upon 
enactment, and the proposed rule would conform part 337 with the 
legislation and align the assessment rules with the statute's 
definition of ``reciprocal deposits.'' The proposed rule applies to all 
FDIC-insured depository institutions. As of March 31, 2018, there were 
5,616 FDIC-insured institutions. Of these, 2,528 institutions report 
having brokered deposits, which totaled $980 billion. Of the 
institutions reporting brokered deposits, 1,185 institutions also 
report having reciprocal deposits, totaling $48 billion.

Benefits

    The proposed rule could affect deposit insurance assessments for a 
small number of FDIC-insured institutions. As discussed in Section II: 
Background, the brokered deposit ratio is one of the financial measures 
used to determine assessment rates for established small banks. The 
brokered deposit ratio may increase assessment rates for established 
small banks with brokered deposits greater than 10 percent of total 
assets.\28\ Among these banks, those that are well capitalized and well 
rated can already deduct reciprocal deposits from brokered deposits and 
generally would not be affected by the proposed rule, for assessment 
purposes.\29\ Furthermore, the proposed rule would not affect the 
assessment rates of banks that do not have reciprocal deposits or whose 
brokered deposits comprise less than 10 percent of total assets. The 
FDIC estimates that fewer than ten (0.178 percent) small FDIC-insured 
institutions that are either not well capitalized or not well rated (or 
both) could have a lower assessment rate under the proposed rule if 
their reciprocal deposits are excepted from brokered deposits.\30\ For 
large institutions, generally insured depository institutions with 
greater than $10 billion in total assets, the proposed rule may alter 
the core deposit ratio, resulting in a change in the bank's 
assessment.\31\ The FDIC estimates that 20 (0.356 percent) FDIC-insured 
institutions could have a lower assessment due to the effect of the 
proposed rule on their core deposit ratio, if their reciprocal deposits 
are excepted from treatment as brokered. Based on data as of March 31, 
2018, the FDIC estimates that no more than 30 institutions would have 
reduced assessment rates, all else equal, and the FDIC's aggregate 
assessment revenue

[[Page 48566]]

would be reduced by an estimated $4.3 million annually.
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    \28\ All else equal, a higher brokered deposit ratio will result 
in a higher assessment rate.
    \29\ See 12 CFR 327.16(a)(1)(ii).
    \30\ FDIC Call Report, March 31, 2018.
    \31\ The core deposit ratio applies to large and highly-complex 
institutions and is measured as domestic deposits, excluding 
brokered deposits and uninsured non-brokered time deposits, divided 
by total liabilities. Reciprocal deposits that are brokered 
reciprocal deposits will continue to be excluded from the ratio. See 
12 CFR 327.16(b) and Appendix B.
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    Adequately capitalized institutions may also benefit from the 
proposed rule through a reduction in administrative costs. Under 
existing regulations, these institutions must seek and receive a 
regulatory waiver from the FDIC in order to accept brokered 
deposits.\32\ The proposed rule would allow these institutions that 
previously accepted reciprocal deposits to continue to receive 
reciprocal deposits up to the lesser of the general or special cap 
without requesting a waiver. This allowance results in a de minimis 
savings of administrative expenses for affected institutions. The 
number of institutions that may benefit from this potential reduction 
in administrative costs is difficult to accurately estimate with 
available data because it depends on the specific financial conditions 
of each bank, fluctuating market conditions for reciprocal deposits, 
and future management decisions.
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    \32\ 12 U.S.C. 1831f(c); 12 CFR 337.6(c).
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    Undercapitalized institutions may also benefit from the proposed 
rule by accepting reciprocal deposits up to the lesser of either the 
general or special cap, even though they are otherwise prohibited from 
receiving brokered deposits.\33\ Under existing regulations, 
undercapitalized institutions cannot solicit or accept any reciprocal 
deposits because all reciprocal deposits are treated as brokered 
deposits. Because the proposed rule excepts a certain amount of 
reciprocal deposits from treatment as brokered, undercapitalized 
institutions that, when better capitalized, previously accepted 
reciprocal deposits may now be allowed to receive reciprocal deposits 
up to the lesser of the general or special cap despite being 
undercapitalized. If undercapitalized institutions can receive 
reciprocal deposits, the result may be increased utilization of 
reciprocal deposits in the future. However, this effect is difficult to 
estimate with available data because the decision to receive reciprocal 
deposits depends on the specific financial conditions of each bank, 
fluctuating market conditions for reciprocal deposits, and future 
management decisions.
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    \33\ 12 CFR 337.6(b).
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    There are 2,528 (45 percent) institutions that report holding some 
amount of brokered deposits and 1,185 (21 percent) that report holding 
some amount of reciprocal deposits. The changes could affect some 
metrics that rely on the amount of brokered deposits reported on the 
Call Report, such as:

 Net Noncore Funding Dependence Ratio
 Brokered Deposits Maturing in less than year to Brokered 
Deposits Ratio
 Brokered Deposits to Deposits Ratio
 Listing Service and Brokered Deposits to Deposits Ratio
 Reciprocal Brokered Deposits to Total Brokered Deposits Ratio

Cost

    With regards to the difference in the current regulatory definition 
of ``reciprocal deposits'' for assessment purposes, which was added 
pursuant to the FDIC's assessment authority under section 7 of the FDI 
Act, and the statutory definition of reciprocal deposits that was added 
to section 29 of the FDI Act, the FDIC notes that banks do not report 
data on the amount (if any) of deposits that were obtained, directly or 
indirectly, by or through a deposit brokered before submission for 
placement through the deposit placement network. As a result, the FDIC 
cannot estimate whether this change to align the assessment regulation 
definition of ``reciprocal deposits'' with the statutory definition of 
that term in section 29 of the FDI Act would affect the amount of 
reciprocal deposits that a bank would report or whether it would affect 
any bank's assessment rate.
    With regards to costs to the Deposit Insurance Fund, the FDIC 
estimates that, assuming all currently reported reciprocals align with 
the statutory definition, all else equal, the FDIC's aggregate 
assessment revenue would be reduced by an estimated $4.3 million 
annually. Additional reduced assessment revenue could occur if 
institutions shift their funding mix away from funding sources that 
affect assessment rates, such as brokered deposits, towards reciprocal 
deposits. Historically, when resolving failed institutions, the FDIC 
has found that potential acquiring institutions have generally been 
unwilling to pay a premium for reciprocal deposits, typically treating 
them consistent with other brokered deposits. It is not clear whether 
reciprocal deposits that are no longer considered brokered as a result 
of section 202 would be viewed by potential acquiring institutions as 
more akin to traditional retail deposits for purposes of warranting a 
premium. As a result, the FDIC requests comment on whether these non-
brokered reciprocal deposits would be considered differently in the 
failing bank context. Additionally, the proposed rule could pose some 
additional regulatory costs associated with changes to internal systems 
or processes, or changes to reporting requirements.

V. Alternatives

    The FDIC considered alternatives to the proposed rule but believes 
that the proposed amendments represent the most appropriate option. In 
particular, the FDIC considered whether a rulemaking implementing 
section 202 was necessary or appropriate. Section 202's amendments to 
section 29 became effective upon the Act's enactment on May 24, 2018, 
so one view considered was whether a rulemaking was necessary to 
implement the amendments. However, the FDIC believes that conforming 
section 337.6 with section 202's amendments will remove confusion that 
might arise if interested parties only consult section 337.6 for 
requirements related to brokered deposits.
    Section 202 did not address the assessment rules in part 327 with 
respect to reciprocal deposits. However, the definition of ``reciprocal 
deposits'' in part 327 varies with the definition of that term in 
section 202. As an alternative, the FDIC considered whether it should 
continue to use the existing definition of ``reciprocal deposits'' for 
assessment purposes. However, the FDIC is concerned that having two 
different definitions of ``reciprocal deposits'' could cause confusion 
as well as undue burden in the industry, particularly for reporting 
purposes.

VI. Request for Comment

    The FDIC seeks comment on its proposal to conform its current 
regulations that implement brokered deposit and interest rate 
restrictions with recent changes to section 29 made by section 202 of 
the Act. As noted earlier, this notice of proposed rulemaking is the 
first part of a two-part effort to revisit the brokered deposit rules. 
The FDIC is currently working on the second part, which is planned for 
later this year and which will seek comment on the brokered deposit 
regulations more generally. We encourage comments not related to the 
implementation of section 202 to be submitted as part of the broader 
rulemaking effort. The FDIC seeks comment on all aspects of this 
proposed rule and in particular the following questions that were 
provided in previous sections of this proposal.
     As indicated above, for an institution that is determined 
to not be well rated and can only meet the ``agent institution'' 
definition by maintaining its reciprocal deposits at or below the 
special cap, the FDIC is considering

[[Page 48567]]

evaluating this issue based on Call Report Data submitted for the 
reporting date immediately following when the determination is made. 
The FDIC seeks comment on any unintended consequences this approach may 
cause to institutions.
     The FDIC seeks comment on other ways an institution that 
is not well rated or not well capitalized could manage its holdings of 
reciprocal deposits in excess of the special cap, consistent with the 
applicable provisions of section 202's definition of ``agent 
institution,'' so that its reciprocal deposits would be treated as non-
brokered.
     The FDIC seeks comment on the extent to which institutions 
may be affected by the FDIC's proposal to conform the definition of 
reciprocal deposits for assessment purposes with the definition 
provided in section 202.
     The FDIC requests comment on whether reciprocal deposits 
that are no longer considered brokered deposits as a result of section 
202 would be viewed by a potential acquiring institution bidding on the 
deposits of a failed institution the same way it views traditional 
retail deposits for which a premium would be offered.
     The FDIC seeks comments on how the regulations should 
apply to de novo institutions that lack four prior quarters of 
reciprocal deposits to calculate the special cap.

VII. Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, 113 
Stat. 1338, 1471 (Nov. 12, 1999), requires the Federal banking agencies 
to use plain language in all proposed and final rules published after 
January 1, 2000. The FDIC invites your comments on how to make this 
revised proposal easier to understand. For example:
     Has the FDIC organized the material to suit your needs? If 
not, how could the material be better organized?
     Are the requirements in the proposed regulation clearly 
stated? If not, how could the regulation be stated more clearly?
     Does the proposed regulation contain language or jargon 
that is unclear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand?

VIII. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
generally requires an agency, in connection with a proposed rule, to 
prepare and make available for public comment an initial regulatory 
flexibility analysis that describes the impact of a proposed rule on 
small entities.\34\ However, a regulatory flexibility analysis is not 
required if the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The Small Business Administration (SBA) has defined ``small entities'' 
to include banking organizations with total assets of less than or 
equal to $550 million.\35\
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    \34\ 5 U.S.C. 601 et seq.
    \35\ The SBA defines a small banking organization as having $550 
million or less in assets, where ``a financial institution's assets 
are determined by averaging the assets reported on its four 
quarterly financial statements for the preceding year.'' See 13 CFR 
121.201 (as amended, effective December 2, 2014). ``SBA counts the 
receipts, employees, or other measure of size of the concern whose 
size is at issue and all of its domestic and foreign affiliates.'' 
See 13 CFR 121.103. Following these regulations, the FDIC uses a 
covered entity's affiliated and acquired assets, averaged over the 
preceding four quarters, to determine whether the covered entity is 
``small'' for the purposes of RFA.
---------------------------------------------------------------------------

    As of March 31, 2018, there were 5,616 FDIC-insured institutions, 
of which 4,177 are considered small entities for the purposes of 
RFA.\36\
---------------------------------------------------------------------------

    \36\ FDIC Call Report, March 31, 2018.
---------------------------------------------------------------------------

    The proposed rule could affect deposit insurance assessments for a 
small number of FDIC-insured, small entities. As discussed in Section 
II: Background, the brokered deposit ratio is one of the financial 
measures used to determine assessment rates for established small 
banks. The brokered deposit ratio may increase assessment rates for 
established small banks with brokered deposits greater than 10 percent 
of total assets.\37\ Among these banks, those that are well capitalized 
and well rated can already deduct reciprocal deposits from brokered 
deposits and generally would not be affected by the proposed rule, for 
assessment purposes.\38\
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    \37\ All else equal, a higher brokered deposit ratio will result 
in a higher assessment rate.
    \38\ See 12 CFR 327.16(a)(1)(ii).
---------------------------------------------------------------------------

    Furthermore, the proposed rule would not affect the assessment 
rates of small banks that do not have reciprocal deposits or whose 
brokered deposits comprise less than 10 percent of total assets. The 
FDIC estimates that seven (0.2 percent) small, FDIC-insured entities 
that are either not well capitalized or not well rated (or both) could 
have a lower assessment rate under the proposed rule if their 
reciprocal deposits are excepted from brokered deposits.\39\
---------------------------------------------------------------------------

    \39\ FDIC Call Report, March 31, 2018.
---------------------------------------------------------------------------

    There are 611 (14.6 percent) small entities that report holding 
some amount of reciprocal deposits and 1,499 (35.9 percent) that report 
holding some amount of brokered deposits. These changes could affect 
some metrics that rely on the amount of brokered deposits reported on 
the Call Report, such as:

 Net Noncore Funding Dependence Ratio
 Brokered Deposits Maturing in less than year to Brokered 
Deposits Ratio
 Brokered Deposits to Deposits Ratio
 Listing Service and Brokered Deposits to Deposits Ratio
 Reciprocal Brokered Deposits to Total Brokered Deposits Ratio

    Based on available information, it is difficult to determine 
whether additional regulatory costs or costs to the Deposit Insurance 
Fund could result. Nonetheless, the proposed rule could pose some 
additional regulatory costs associated with changes to internal systems 
or processes, or changes to reporting requirements. Based on the 
information above, the FDIC certifies that the proposed rule will not 
have a significant economic impact on a substantial number of small 
entities.
    The FDIC invites comments on all aspects of the supporting 
information provided in this RFA section. In particular, would this 
rule have any significant effects on small entities that the FDIC has 
not identified?

IX. Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501-3521) (PRA), the FDIC may not conduct or 
sponsor, and a respondent is not required to respond to, an information 
collection unless it displays a currently valid Office of Management 
and Budget (OMB) control number. The FDIC has reviewed the proposed 
rule and determined that it revises certain reporting requirements that 
have been previously cleared by the OMB under various control 
numbers.\40\
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    \40\ The reporting requirements are found in the three 
Consolidated Reports of Condition and Income (Call Reports) 
promulgated by the Federal Financial Institutions Examination 
Council (FFIEC). The Call Reports are designated FFIEC 031 
(Consolidated Report of Condition and Income for a Bank with 
Domestic and Foreign Offices); FFIEC 041 (Consolidated Report of 
Condition and Income for a Bank with Domestic Offices Only); and 
FFIEC 051 (Consolidated Report of Condition and Income for a Bank 
with Domestic Only and Total Assets of Less than $1 Billion). The 
FFIEC constituent bank regulatory agencies (the Board of Governors 
of the Federal Reserve System (the Board), the Office of the 
Comptroller of the Currency (the OCC) and the FDIC) (the Agencies) 
have each obtained information collection clearances from OMB under 
the following Control Numbers: 7100-0036 (Board); 1557-0081 (OCC); 
and 3064-0052 (FDIC).
---------------------------------------------------------------------------

    On May 24, 2018, EGRRCPA amended various statutes administered by 
the Agencies and affected regulations issued

[[Page 48568]]

by the Agencies.\41\ As described above, certain amendments made by 
EGRRCPA took effect on the day of EGRRCPA's enactment and immediately 
impacted institutions' regulatory reports. In response to emergency 
review requests, the Agencies received approval from OMB to revise the 
reporting of information in the Call Reports including the reciprocal 
deposits provisions described in this proposed rule. As a result of 
OMB's emergency approval of revisions to the information collections 
affected by the above statutory changes, the expiration date of these 
collections has been revised to February 28, 2019. The Agencies are now 
undertaking the regular PRA process for revising and extending these 
information collections for three years and plan to publish the 
required 60-day notice in the Federal Register.
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    \41\ Public Law 115-174, 132 Stat. 1296 (2018).
---------------------------------------------------------------------------

X. Riegle Community Development and Regulatory Improvement Act

    The Riegle Community Development and Regulatory Improvement Act of 
1994 (RCDRIA), 12 U.S.C. 4701, requires that each Federal banking 
agency, in determining the effective date and administrative compliance 
requirements for new regulations that impose additional reporting, 
disclosure, or other requirements on insured depository institutions, 
consider, consistent with principles of safety and soundness and the 
public interest, any administrative burdens that such regulations would 
place on depository institutions, including small depository 
institutions, and customers of depository institutions, as well as the 
benefits of such regulations.\42\ In addition, new regulations that 
impose additional reporting, disclosures, or other new requirements on 
insured depository institutions generally must take effect on the first 
day of a calendar quarter that begins on or after the date on which the 
regulations are published in final form.
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    \42\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

    The changes relating to ``reciprocal deposits'' and section 29 were 
effective upon enactment of section 202, and as described previously, 
institutions have already begun reporting reciprocal deposits as per 
the new law. The FDIC anticipates that any final rule relating to the 
amendments to part 337 of the FDIC's regulations would be effective 30 
days after publication in the Federal Register. However, the proposed 
rule also includes changes to conform section 202's statutory 
definition of ``reciprocal deposit'' with the current definition of 
``reciprocal deposit'' in the FDIC's assessments regulations in part 
327. The FDIC is inviting comment on any administrative burdens that 
the proposed changes would place on depository institutions, including 
small depository institutions, and customers of depository 
institutions. The FDIC will consider these comments in connection with 
determining an effective date for the proposed rule. Consistent with 
RCDRIA, the FDIC anticipates that any changes to the assessment rule 
would be effective on the first day of a calendar quarter that begins 
after the date on which a final rule is published.

List of Subjects

12 CFR Part 327

    Bank deposit insurance, Banks, Banking, Savings associations.

12 CFR Part 337

    Banks, Banking, Reporting and recordkeeping requirements, Savings 
associations.

    For the reasons stated in the preamble, the FDIC hereby proposes to 
amend parts 327 and 337 as follows:

PART 327--ASSESSMENTS

0
1. The authority for 12 CFR part 327 continues to read as follows:

    Authority:  12 U.S.C. 1441, 1813, 1815, 1817-19, 1821.

0
2. Amend Sec.  327.8 by revising paragraph (q) to read as follows:


Sec.  327.8  Definitions.

* * * * *
    (q) Brokered reciprocal deposits--Reciprocal deposits as defined in 
Sec.  337.6(e)(2)(v) that are not excepted from the institution's 
brokered deposits pursuant to Sec.  337.6(e).
* * * * *


Sec.  327.16   [Amended]

0
3. Amend Sec.  327.16, by removing ``reciprocal deposit'' and adding in 
its place ``brokered reciprocal deposit as defined in section 
327.8(q)'' in paragraph (a)(1)(ii) and by removing ``reciprocal 
deposits as defined in Sec.  327.8(p)'' and adding in its place 
``brokered reciprocal deposits as defined in section 327.8(q)'' in 
paragraph (e)(3).

PART 337--UNSAFE AND UNSOUND BANKING PRACTICES

0
4. The authority for 12 CFR part 337 continues to read as follows:

    Authority:  12 U.S.C. 375a(4), 375b, 1463(a)(1),1816, 1818(a), 
1818(b), 1819, 1820(d), 1828(j)(2), 1831, 1831f, 5412.

0
5. Amend Sec.  337.6 by revising paragraph (b)(2)(ii) introductory 
text, redesignating paragraph (e) as paragraph (f), and adding a new 
paragraph (e) to read as follows:


Sec.  337.6  Brokered deposits.

* * * * *
    (b) * * *
    (2) * * *
    (ii) Any adequately capitalized insured depository institution that 
has been granted a waiver to accept, renew or roll over a brokered 
deposit, or is an agent institution that receives a reciprocal deposit 
(under Sec.  337.6(e)(2)(i)(C)), may not pay an effective yield on any 
such deposit which, at the time that such deposit is accepted, renewed 
or rolled over, exceeds by more than 75 basis points:
* * * * *
    (e) Limited exception for reciprocal deposits. (1) Limited 
exception. Reciprocal deposits of an agent institution shall not be 
considered to be funds obtained, directly or indirectly, by or through 
a deposit broker to the extent that the total amount of such reciprocal 
deposits does not exceed the lesser of:
    (i) $5,000,000,000; or
    (ii) An amount equal to 20 percent of the total liabilities of the 
agent institution.
    (2) Additional definitions that apply to the limited exception for 
reciprocal deposits--(i) Agent institution means an insured depository 
institution that places a covered deposit through a deposit placement 
network at other insured depository institutions in amounts that are 
less than or equal to the standard maximum deposit insurance amount, 
specifying the interest rate to be paid for such amounts, if the 
insured depository institution:
    (A)(1) When most recently examined under section 10(d) of the 
Federal Deposit Insurance Act (12 U.S.C. 1820(d)) was found to have a 
composite condition of outstanding or good; and
    (2) Is well capitalized;
    (B) Has obtained a waiver pursuant to paragraph (c) of this 
section; or
    (C) Does not receive an amount of reciprocal deposits that causes 
the total amount of reciprocal deposits held by the agent institution 
to be greater than the average of the total amount of reciprocal 
deposits held by the agent institution on the last day of each of the 
four calendar quarters preceding the calendar quarter in which the 
agent institution was found not to have a composite condition of 
outstanding or good or was determined to be not well capitalized.
    (ii) Covered deposit means a deposit that:

[[Page 48569]]

    (A) Is submitted for placement through a deposit placement network 
by an agent institution; and
    (B) Does not consist of funds that were obtained for the agent 
institution, directly or indirectly, by or through a deposit broker 
before submission for placement through a deposit placement network.
    (iii) Deposit placement network means a network in which an insured 
depository institution participates, together with other insured 
depository institutions, for the processing and receipt of reciprocal 
deposits.
    (iv) Network member bank means an insured depository institution 
that is a member of a deposit placement network.
    (v) Reciprocal deposits means deposits received by an agent 
institution through a deposit placement network with the same maturity 
(if any) and in the same aggregate amount as covered deposits placed by 
the agent institution in other network member banks.

    Dated at Washington, DC, on September 12, 2018.

Federal Deposit Insurance Corporation.

Robert E. Feldman,
Executive Secretary.
[FR Doc. 2018-20303 Filed 9-25-18; 8:45 am]
BILLING CODE 6714-01-P