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115th Congress  }                                            {  Report
                         HOUSE OF REPRESENTATIVES
 2d Session     }                                            {  115-1096

======================================================================



 
    BROKERED DEPOSIT AFFILIATE-SUBSIDIARY MODERNIZATION ACT OF 2018

                                _______
                                

 December 21, 2018.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 6158]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 6158) to amend the Federal Deposit Insurance Act 
to exclude affiliates and subsidiaries of insured depository 
institutions in the definition of deposit broker, and for other 
purposes, having considered the same, report favorably thereon 
without amendment and recommend that the bill do pass.

                          Purpose and Summary

    Introduced by Representative Scott Tipton on June 20, 2018, 
H.R. 6158, the ``Brokered Deposit Affiliate-Subsidiary 
Modernization Act of 2018'' amends the Federal Deposit 
Insurance Act (12 U.S.C. 1831f) (FDIA) to exempt funds 
collected through an insured depository institution's affiliate 
or subsidiary from the definition of ``deposit broker.''

                  Background and Need for Legislation

    Congress adopted the definition of ``deposit broker''\1\ in 
1989\2\ with the passage and enactment of the Financial 
Institutions Reform, Recovery, and Enforcement Act (FIRREA) 
[P.L. 101-73]. Congress later adopted in 1991 additional 
limitations on brokered deposits. Both provisions were included 
in legislation to address the savings and loan crisis and 
neither provision has been revised since they were adopted. The 
legislation was intended to limit the ability of weak 
depository institutions to use brokered deposits to grow 
rapidly, though there were conflicting views on the need for 
it. Brokered deposits are considered higher risks as the 
deposits have a higher probability of being withdrawn at short 
notice than core deposits\3\ because investors are seeking 
short-term, high interest rate investment opportunities, which 
some view as an artificial increase in an institution's 
capital. Consequently, banks holding brokered deposits are 
required to have additional safeguards and are assessed higher 
deposit-insurance premiums as a result.
---------------------------------------------------------------------------
    \1\Deposit brokers provide intermediary services for banks and 
investors, with each deposit broker operating under their own 
guidelines for obtaining deposits.
    \2\12 U.S.C. Sec. 1831f(g)(1).
    \3\Core deposits are defined in the Uniform Bank Performance Report 
to include demand deposits, all Negotiable Order of Withdrawal (NOW) 
accounts, automatic transfer service (ATS) accounts, money market 
deposit accounts (MMDAs) other savings deposits, and time deposits 
under $250,000.
---------------------------------------------------------------------------
    Through the Federal Deposit Insurance Corporation's (FDIC) 
staff interpretations, the FDIC has traditionally given the 
broadest possible reading to the definition of ``deposit 
broker'' and the narrowest possible reading to various 
statutory exemptions.\4\ The staff interpretations do not 
reflect changes to the law, technology, and the marketplace 
over the past 25 years.
---------------------------------------------------------------------------
    \4\See FDIC, ``Guidance on Identifying, Accepting, and Reporting 
Brokered Deposits Frequently Asked Questions.'' (Dec. 2014). Available 
at https://www.fdic.gov/news/news/financial/2015/fil15002a.pdf.
---------------------------------------------------------------------------

            TECHNOLOGICAL DEVELOPMENTS IN FINANCIAL SERVICES

    There have been significant advancements in financial 
services industry technology since the adoption of the 
``deposit broker'' definition. The introduction of online 
banking and mobile payment products have dramatically changed 
the manner and geographical territories in which banks generate 
deposits and interact with their customers. Some banks have an 
online-only presence or fintech-type subsidiaries that offer 
deposit accounts to consumers and small businesses. New 
brokered deposit products, as well, have entered the market. 
One such product is the deposit account ``sweep'' program 
offered by many securities brokers. These sweep programs, which 
frequently include a transfer of excess customer cash balances 
to the securities broker's affiliated bank, currently account 
for more than $1 trillion of deposits in the banking system.\5\ 
A sweep program transfers the excess cash balances into either 
an uninsured money market fund or an FDIC insured bank deposit 
to provide additional yield and insurance coverage on those 
funds. The FDIC has acknowledged in both its 2011 Study on Core 
and Brokered Deposits\6\ and the Liquidity Coverage Ratio\7\ 
regulations that deposits received by a bank through an 
affiliated broker's sweep program are more stable than other 
types of deposits at banks. According to the FDIC's study on 
brokered deposits:

    \5\https://www.americanbanker.com/opinion/uncertainty-chilling-
broker-dealer-sweep-deposit-market.
    \6\Federal Deposit Insurance Corporation, ``Study on Core Deposits 
and Brokered Deposits'' (July, 2011). Available at https://
www.fdic.gov/regulations/reform/coredeposit-study.pdf.
    \7\https://www.fdic.gov/regulations/laws/rules/2000-5300.html.

          In all, sweep deposits from affiliates appear to pose 
        fewer problems compared to brokered deposits in 
        general. These deposits would not appear to foster 
        growth other than during an initial growth period, are 
        not rate responsive (although they may be responsive to 
        other investment opportunities) and may not leave when 
        a bank is under stress.\8\
---------------------------------------------------------------------------
    \8\FDIC, supra note 7, at 55.

    During the financial crisis data also shows that banks saw 
a net inflow of sweep deposits from brokerage customers as they 
de-risked out of securities holdings. This counter-cyclical 
effect increased, rather than decreased, stability for these 
banks in a time of uncertainty. Despite these findings, the 
FDIC has consistently treated deposits from sweep programs as 
brokered deposits. The Brokered Deposit Affiliate-Subsidiary 
Modernization Act addresses this issue by exempting funds 
collected through an affiliate or subsidiary, including 
employees of an affiliate or subsidiary, from the definition of 
``deposit broker.'' This change recognizes that customers of a 
bank's affiliates view themselves as having a relationship with 
the entire firm and acknowledges the stability of deposits that 
originate from customers of a bank's subsidiary or other 
affiliate.

                                Hearings

    The Subcommittee on Financial Institutions held a hearing 
examining matters relating to H.R. 6158 on September 27, 2016.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
September 13, 2018, and ordered H.R. 6158 to be reported 
favorably to the House without amendment by a recorded vote of 
34 yeas to 17 nays (recorded vote no. FC-211), a quorum being 
present.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. An 
amendment offered by Ranking Member Waters was not agreed to by 
a recorded vote of 20 yeas to 31 nays (Record vote no. FC-210). 
A motion by Chairman Hensarling to report the bill favorably to 
the House without amendment was agreed to by a recorded vote of 
34 yeas to 17 nays (Record vote no. FC-211), a quorum being 
present.


                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 6158 
will exempt funds collected through an insured depository 
institution's affiliate or subsidiary from the definition of 
``deposit broker.''

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                 Congressional Budget Office Estimates

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, December 20, 2018.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 6158, the Brokered 
Deposit Affiliate-Subsidiary Modernization Act of 2018.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Sarah Puro.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 6158--Brokered Deposit Affiliate-Subsidiary Modernization Act of 
        2018

    Summary: H.R. 6158 would amend the definition of brokered 
deposits, which banks typically receive from financial brokers 
or other banks rather than directly from customers. Those 
deposits are used by the Federal Deposit Insurance Corporation 
(FDIC) to calculate its assessments of deposit insurance for 
banks with assets over $10 billion. CBO estimates that enacting 
the bill would reduce the collection of those assessments, 
which are classified as offsetting receipts. A reduction in 
offsetting receipts has the effect of increasing direct 
spending; CBO estimates those increases in direct spending 
would total $1.5 billion over the 2019-2028 period.
    Because enacting the bill would affect direct spending, 
pay-as-you-go procedures apply. The bill would not affect 
revenues.
    CBO estimates that enacting H.R. 6158 would not increase 
net direct spending or on-budget deficits by more than $5 
billion in any of the four consecutive 10-year periods 
beginning in 2029.
    H.R. 6158 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA).
    Estimated cost to the Federal Government: The estimated 
budgetary effect of H.R. 6158 is shown in the following table. 
The costs of the legislation fall within budget function 370 
(commerce and housing credit).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  By fiscal year, in millions of dollars--
                                                   -----------------------------------------------------------------------------------------------------
                                                     2019    2020    2021    2022    2023    2024    2025    2026    2027    2028   2019-2023  2019-2028
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              INCREASES IN DIRECT SPENDING
 
Estimated Budget Authority........................       0     100     125     150     175     175     175     200     200     200       550       1,500
Estimated Outlays.................................       0     100     125     150     175     175     175     200     200     200       550       1,500
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Basis of estimate: H.R. 6158 would change the amount of 
receipts collected by the FDIC for deposit insurance by 
expanding the definition of who is exempt from treatment as a 
deposit broker and who is considered an employee of a bank 
under the law. For deposits at institutions with assets over 
$10 billion the FDIC currently charges an assessment of between 
zero and 10 basis points for brokered deposits that exceed 10 
percent of domestic deposits; those charges are on top of the 
base assessment rate of 3 to 30 basis points. Thus, the bill 
would affect how much banks with assets of over $10 billion pay 
to the FDIC for deposit insurance.
    Under current law, only people who are directly employed by 
an insured depository institution and are paid a salary by the 
institution are exempt from being considered deposit brokers. 
(Deposit brokers are people who place brokered deposits at 
banks.) Under H.R. 6158, the definition of an employee would 
expand to include any person who receives compensation in any 
form from the insured depository institution or its 
affiliates--usually a brokerage house connected under a 
corporate umbrella. Under that definition people who are not 
directly employed by either banks or their affiliates also 
could be considered employees, and thus would be exempt from 
treatment as a deposit broker.
    The magnitude of budgetary effects would depend on how 
financial institutions react to the new definition of an 
employee. CBO expects that the broader definition in the bill 
would reduce assessments paid by banks to the extent that they 
change their organization or compensation to take advantage of 
the new definition. Some banks may choose not to change their 
corporate structure or employee compensation methods because 
they may prefer their current organization and methods or 
because deposit insurance assessments represent a small part of 
their annual costs. Other banks have expressed a desire to have 
more deposits from people who are currently considered deposit 
brokers but who would be exempt from the definition under the 
bill. H.R. 6158 would provide a financial incentive for banks 
to change how brokered deposits are handled, but CBO expects 
that the probability that banks with brokered deposits would 
adjust their business models to reduce the FDIC assessments 
would equal 50 percent.
    Using information from the FDIC, CBO estimates that in 2018 
banks paid about $250 million in assessments based on their 
level of brokered deposits. Using the growth rate for 
assessments incorporated in CBOs April 2018 baseline estimates 
for the FDIC, CBO expects that those assessments will grow to 
about $400 million per year by 2028 and would total about $3 
billion over the 2020-2028 period. (CBO expects any changes 
would affect receipts beginning in 2020.) As a result, CBO 
estimates that assessments would decrease by an average of $150 
million per year over the 2019-2028 period and that 
implementing the bill would increase direct spending by $1.5 
billion over that period.
    Uncertainty: CBO aims to produce cost estimates that 
generally reflect the middle of the range of the most likely 
budgetary outcomes that would result if the legislation was 
enacted. For this estimate, spending could be higher or lower 
because:
           Banks could choose to change their 
        employment or compensation arrangements for brokered 
        deposits for reasons that are unrelated to deposit 
        insurance assessments and those changes would affect 
        the amount of assessments they pay.
           The FDIC also could interpret the 
        legislative language more broadly or more narrowly than 
        CBO did, which would change the level of brokered 
        deposits affected by the legislation, the types of 
        compensation and employment relationships that are 
        exempt from the brokered deposits definition, and thus 
        the amount of assessments paid under the bill.
    Pay-As-You-Go considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in outlays that are subject to those 
pay-as-you-go procedures are shown in the following table.

  CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 6158, THE BROKERED DEPOSIT AFFILIATE-SUBSIDIARY MODERNIZATION ACT OF 2018, AS ORDERED REPORTED BY THE
                                               HOUSE COMMITTEE ON FINANCIAL SERVICES ON SEPTEMBER 13, 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  By fiscal year, in millions of dollars--
                                                   -----------------------------------------------------------------------------------------------------
                                                     2019    2020    2021    2022    2023    2024    2025    2026    2027    2028   2019-2023  2019-2028
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               NET INCREASE IN THE DEFICIT
 
Statutory Pay-As-You-Go Effect....................       0     100     125     150     175     175     175     200     200     200       550       1,500
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Increase in long-term direct spending and deficits: CBO 
estimates that enacting H.R. 6158 would not increase net direct 
spending or on-budget deficits by more than $5 billion in any 
of the four consecutive 10-year periods beginning in 2029.
    Mandates: H.R. 6158 contains no intergovernmental or 
private-sector mandates as defined in UMRA.
    Estimate prepared by: Federal costs: Kim Cawley; Mandates: 
Rachel Austin.
    Estimate reviewed by: H. Samuel Papenfuss, Deputy Assistant 
Director for Budget Analysis; Theresa A. Gullo, Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995.
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    Duplication of Federal Programs

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, (115th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the bill requires no 
directed rule makings within the meaning of such section.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section cites H.R. 6158 as the ``Brokered Deposit 
Affiliate-Subsidiary Modernization Act of 2018''

Section 2. Exclusion of affiliates and subsidiaries of insured 
        depository institutions in the definition of deposit broker

    This section amends Section 29(g) of the Federal Deposit 
Insurance Act by updating definitions.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

                     FEDERAL DEPOSIT INSURANCE ACT




           *       *       *       *       *       *       *
SEC. 29. BROKERED DEPOSITS.

  (a) In General.--An insured depository institution that is 
not well capitalized may not accept funds obtained, directly or 
indirectly, by or through any deposit broker for deposit into 1 
or more deposit accounts.
  (b) Renewals and rollovers treated as acceptance of funds.--
Any renewal of an account in any troubled institution and any 
rollover of any amount on deposit in any such account shall be 
treated as an acceptance of funds by such troubled institution 
for purposes of subsection (a).
  (c) Waiver Authority.--The Corporation may, on a case-by-case 
basis and upon application by an insured depository institution 
which is adequately capitalized (but not well capitalized), 
waive the applicability of subsection (a) upon a finding that 
the acceptance of such deposits does not constitute an unsafe 
or unsound practice with respect to such institution.
  (d) Limited Exception for Certain Conservatorships.--In the 
case of any insured depository institution for which the 
Corporation has been appointed as conservator, subsection (a) 
shall not apply to the acceptance of deposits (described in 
such subsection) by such institution if the Corporation 
determines that the acceptance of such deposits--
          (1) is not an unsafe or unsound practice;
          (2) is necessary to enable the institution to meet 
        the demands of its depositors or pay its obligations in 
        the ordinary course of business; and
          (3) is consistent with the conservator's fiduciary 
        duty to minimize the institution's losses.
Effective 90 days after the date on which the institution was 
placed in conservatorship, the institution may not accept such 
deposits.
  (e) Restriction on Interest Rate Paid.--
          (1) Definitions.--In this subsection--
                  (A) the terms ``agent institution'', 
                ``reciprocal deposits'', and ``well 
                capitalized'' have the meanings given those 
                terms in subsection (i); and
                  (B) the term ``covered insured depository 
                institution'' means an insured depository 
                institution that--
                          (i) under subsection (c) or (d), 
                        accepts funds obtained, directly or 
                        indirectly, by or through a deposit 
                        broker; or
                          (ii) while acting as an agent 
                        institution under subsection (i), 
                        accepts reciprocal deposits while not 
                        well capitalized.
          (2) Prohibition.--A covered insured depository 
        institution may not pay a rate of interest on funds or 
        reciprocal deposits described in paragraph (1) that, at 
        the time that the funds or reciprocal deposits are 
        accepted, significantly exceeds the limit set forth in 
        paragraph (3).
          (3) Limit on interest rates.--The limit on the rate 
        of interest referred to in paragraph (2) shall be--
                  (A) the rate paid on deposits of similar 
                maturity in the normal market area of the 
                covered insured depository institution for 
                deposits accepted in the normal market area of 
                the covered insured depository institution; or
                  (B) the national rate paid on deposits of 
                comparable maturity, as established by the 
                Corporation, for deposits accepted outside the 
                normal market area of the covered insured 
                depository institution.
  (f) Additional Restrictions.--The Corporation may impose, by 
regulation or order, such additional restrictions on the 
acceptance of brokered deposits by any institution as the 
Corporation may determine to be appropriate.
  (g) Definitions Relating to Deposit Broker.--
          (1) Deposit broker.--The term ``deposit broker'' 
        means--
                  (A) 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; 
                and
                  (B) an agent or trustee who establishes a 
                deposit account to facilitate a business 
                arrangement with an insured depository 
                institution to use the proceeds of the account 
                to fund a prearranged loan.
          (2) Exclusions.--The term ``deposit broker'' does not 
        include--
                  (A) an insured depository institution or any 
                affiliate or subsidiary of such insured 
                depository institution, with respect to funds 
                placed with that depository institution;
                  (B) an employee of an insured depository 
                institution or any affiliate or subsidiary of 
                such insured depository institution, with 
                respect to funds placed with the employing 
                depository institution;
                  (C) a trust department of an insured 
                depository institution, if the trust in 
                question has not been established for the 
                primary purpose of placing funds with insured 
                depository institutions;
                  (D) the trustee of a pension or other 
                employee benefit plan, with respect to funds of 
                the plan;
                  (E) a person acting as a plan administrator 
                or an investment adviser in connection with a 
                pension plan or other employee benefit plan 
                provided that that person is performing 
                managerial functions with respect to the plan;
                  (F) the trustee of a testamentary account;
                  (G) the trustee of an irrevocable trust 
                (other than one described in paragraph (1)(B)), 
                as long as the trust in question has not been 
                established for the primary purpose of placing 
                funds with insured depository institutions;
                  (H) a trustee or custodian of a pension or 
                profitsharing plan qualified under section 
                401(d) or 403(a) of the Internal Revenue Code 
                of 1986; or
                  (I) an agent or nominee whose primary purpose 
                is not the placement of funds with depository 
                institutions.
          (3) Inclusion of depository institutions engaging in 
        certain activities.--Notwithstanding paragraph (2), the 
        term ``deposit broker'' includes any insured depository 
        institution that is not well capitalized (as defined in 
        section 38), and any employee of such institution, 
        which engages, directly or indirectly, in the 
        solicitation of deposits by offering rates of interest 
        which are significantly higher than the prevailing 
        rates of interest on deposits offered by other insured 
        depository institutions in such depository 
        institution's normal market area.
          [(4) Employee.--For purposes of this subsection, the 
        term ``employee'' means any employee--
                  [(A) who is employed exclusively by the 
                insured depository institution;
                  [(B) whose compensation is primarily in the 
                form of a salary;
                  [(C) who does not share such employee's 
                compensation with a deposit broker; and
                  [(D) whose office space or place of business 
                is used exclusively for the benefit of the 
                insured depository institution which employs 
                such individual.]
          (4) Employee.--For purposes of this subsection, the 
        term ``employee''--
                  (A) means an individual who receives 
                compensation in any form from an insured 
                depository institution or an affiliate or 
                subsidiary of such insured depository 
                institution; and
                  (B) includes a registered representative of a 
                broker or dealer that is an affiliate or 
                subsidiary of an insured depository 
                institution.
  (h) Deposit Solicitation Restricted.--An insured depository 
institution that is undercapitalized, as defined in section 38, 
shall not solicit deposits by offering rates of interest that 
are significantly higher than the prevailing rates of interest 
on insured deposits--
          (1) in such institution's normal market areas; or
          (2) in the market area in which such deposits would 
        otherwise be accepted.
  (i) Limited Exception for Reciprocal Deposits.--
          (1) In general.--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--
                  (A) $5,000,000,000; or
                  (B) an amount equal to 20 percent of the 
                total liabilities of the agent institution.
          (2) Definitions.--In this subsection:
                  (A) Agent institution.--The term ``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--
                          (i)(I) when most recently examined 
                        under section 10(d) was found to have a 
                        composite condition of outstanding or 
                        good; and
                          (II) is well capitalized;
                          (ii) has obtained a waiver pursuant 
                        to subsection (c); or
                          (iii) 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 4 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.
                  (B) Covered deposit.--The term ``covered 
                deposit'' means a deposit that--
                          (i) is submitted for placement 
                        through a deposit placement network by 
                        an agent institution; and
                          (ii) 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.
                  (C) Deposit placement network.--The term 
                ``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.
                  (D) Network member bank.--The term ``network 
                member bank'' means an insured depository 
                institution that is a member of a deposit 
                placement network.
                  (E) Reciprocal deposits.--The term 
                ``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.
                  (F) Well capitalized.--The term ``well 
                capitalized'' has the meaning given the term in 
                section 38(b)(1).

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    H.R. 6158, the ``Brokered Deposit Affiliate-Subsidiary 
Modernization Act of 2018,'' would exempt affiliates or 
subsidiaries, as well as their employees, of depository 
institutions from the Federal Deposit Insurance Corporation's 
(``FDIC'') limitations on brokered deposits to the extent they 
make deposits for their customers with their own affiliated 
banks.
    Some brokerages that are affiliated with a bank offer cash 
management accounts (also referred to as ``sweep accounts'' or 
``sweep deposits'') to customers who keep cash in their 
brokerage accounts. These deposits would otherwise be 
considered brokered deposits and subject to the limitations 
under the Federal Deposit Insurance Act (12 U.S.C. 1831f). 
However, the FDIC has previously provided various 
administrative exemptions for these kind of sweep accounts, 
with certain limitations.\1\ In its current form, H.R. 6158 
would completely exempt these kinds of sweep accounts without 
any limitations.
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    \1\For example, see William F. Kroener, III, General Counsel, FDIC, 
``Advisory Opinion--Are funds held in ``Cash Management Accounts'' 
viewed as brokered deposits by the FDIC?'' (Feb. 2005), available at: 
https://www.fdic.gov/regulations/laws/rules/4000-10350.html.
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    Unlike core deposits from traditional bank customers that 
are typically more stable and a less costly source of funding, 
brokered deposits are viewed as riskier because a broker 
generally pools deposits from many small investors and 
negotiates a higher rate for the pooled certificates of 
deposit. The concept of brokered deposits came out of the 
savings and loan (``S&L'') crisis of the 1980s when risky 
institutions bid for deposits in the open market to shore up 
their balance sheets. This was considered ``hot money'' and 
unreliable as a funding base because they could be quickly 
withdrawn by the broker. Although restrictions were put in 
place, the Government Accountability Office (``GAO'') found 
that, similar to the S&L crisis, brokered deposits contributed 
to several bank failures in the 2008 financial crisis. In a 
report, GAO wrote that, ``The failed banks also had often 
pursued aggressive growth strategies using nontraditional, 
riskier funding sources and exhibited weak underwriting and 
credit administration practices. . . . the use of brokered 
deposits, a funding source carrying higher risk than core 
deposits, were associated with an increased likelihood of 
failure for banks across all states during the period.''\2\
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    \2\GAO, ``Financial Institutions: Causes and Consequences of Recent 
Bank Failures,'' (Jan. 2013), available at: https://www.gao.gov/
products/GAO-13-71.
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    In a report required by Section 1506 of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, the FDIC examined 
the various benefits and considerations with sweep accounts. 
The agency wrote:

          The FDIC recognizes in the examination process that 
        sweep deposits from affiliates can be a stable source 
        of funding for financially sound institutions offering 
        a market rate. . . . banks with an affiliate sweep 
        program can seek a ``primary purpose exception'' under 
        which a limited percentage of sweep deposits will not 
        be considered brokered. . . . In all, sweep deposits 
        from affiliates appear to pose fewer problems compared 
        to brokered deposits in general. . . . While other 
        sweeps from affiliates do not present all of the 
        problems that traditional brokered deposits present, 
        they pose sufficient potential problems--particularly 
        due to their volume, dependence on the business success 
        and strategy of an affiliate, the affiliate's control 
        over the deposits, and whether the deposits will leave 
        banks once investment opportunities improve--that they 
        should continue to come under the purview of the 
        statute.''\3\
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    \3\FDIC, ``Core and Brokered Deposit Study as Mandated by Section 
1506 of the Dodd Frank Wall Street Reform and Consumer Protection 
Act,'' (July 2011), available at. https://www.fdic.gov/regulations/
reform/coredeposits.html.

    H.R. 6158 seeks to address reasonable concerns. However, in 
bypassing a legislative hearing on the bill, we believe the 
Committee was not able to fully review the bill or the 
appropriateness of the bill's proposed solution. Furthermore, 
the day after the Committee voted to report H.R. 6158 to the 
full House, the FDIC announced a new initiative to conduct a 
comprehensive review of the current brokered deposit rules,\4\ 
which may ultimately result in improvements that may more 
appropriately address the issues the bill purports to fix.
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    \4\FDIC Press Release, ``FDIC Seeks Comment on the Treatment of 
Reciprocal Deposits,'' (Sep. 13, 2018), available at: https://
www.fdic.gov/news/news/press/2018/pr18060.html.
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    For these reasons, we oppose H.R. 6158.

                                   Maxine Waters.
                                   Carolyn B. Maloney.
                                   Nydia M. Velazquez.
                                   Michael E. Capuano.