S. 2757: Keeping Deposits Local Act

This bill, named the Keeping Deposits Local Act, aims to modify certain aspects of how deposits at insured banks are treated under the Federal Deposit Insurance Act. Specifically, it focuses on defining and adjusting the classification of reciprocal deposits, which refer to deposits exchanged between banks through deposition brokers.

Changes to Reciprocal Deposits

The bill proposes an amendment to how much of reciprocal deposits from an agent institution will not be considered funds obtained through a deposit broker. The new thresholds set by the bill are as follows:

• 50% of the total liabilities up to $1 billion.
• 40% of the total liabilities between $1 billion and $10 billion.
• 30% of the total liabilities between $10 billion and $250 billion.
• 20% of the total liabilities between $250 billion and $1 trillion.
• 2% of the total liabilities exceeding $1 trillion.

This means that as banks grow in size and their total liabilities increase, a decreasing percentage of those liabilities will be exempt from being classified as obtained through a broker, thereby potentially affecting how certain types of deposits are calculated for insurance purposes.

Definition of Agent Institution

The bill also revises the criteria for what constitutes an “agent institution.” It changes the requirement from needing a rating of “outstanding or good” to needing a CAMELS rating of 1, 2, or 3. The CAMELS system is a supervisory rating system that evaluates banks based on various factors including capital adequacy, asset quality, management quality, earnings, liquidity, and sensitivity to market risk. This change broadens the scope of institutions that can be classified as agent institutions.

Implications for Banking Institutions

By modifying the classification and treatment of reciprocal deposits, the bill could influence how banks manage their liquidity and their relationships with brokers, as well as how they handle deposits in general. Banks may respond to these regulatory changes in various ways, including adjustments to deposit pricing or re-evaluating their strategies for managing relationships with deposit brokers.

Summary of Objectives

Overall, the Keeping Deposits Local Act seeks to encourage certain types of deposits while potentially easing restrictions on how banks classify their liabilities, which could have broader implications for the banking sector and the way it interacts with deposit brokers.

Relevant Companies

• JPMorgan Chase & Co. (JPM): As a large financial institution, any changes to deposit classifications and regulations regarding reciprocal deposits could have significant implications for how they manage their deposit liabilities and relationships with brokers.
• Bank of America Corp. (BAC): Similar to JPMorgan Chase, Bank of America may also need to reassess its deposit strategies based on the changes proposed in this bill.
• Citigroup Inc. (C): Citigroup would be affected similarly, as adjustments to deposit regulations can impact their liquidity management and competitive position in the banking sector.