HR 3234: Keeping Deposits Local Act

HR 3234 in plain English: This bill increases the amount of reciprocal deposits that insured depository institutions can accept, using a tiered system based on total liabilities. It also expands eligibility by allowing institutions with CAMELS ratings of 1, 2, or 3 to qualify, broadening access beyond the current outstanding or good composite rating requirement.

Stated purpose

This bill aims to allow banks and other insured depository institutions to accept larger amounts of reciprocal deposits without those deposits being classified as brokered deposits, and to make it easier for more institutions to qualify to use reciprocal deposit networks.

Key points

• Creates a tiered system for reciprocal deposit limits based on an institution's total liabilities
• Allows 40 percent of total liabilities between $1 billion and $10 billion to count toward the reciprocal deposit limit
• Allows 30 percent of total liabilities between $10 billion and $250 billion to count toward the limit
• Expands eligibility to institutions with CAMELS ratings of 1, 2, or 3, not just the highest-rated institutions
• Reduces a Federal Reserve Act payment by $28 million as part of the bill's provisions

Arguments supporters make

• Allowing more reciprocal deposits keeps money in local and community banks rather than sending it to large national institutions, supporting local lending and economic activity.
• Expanding deposit insurance access through reciprocal networks gives municipalities, small businesses, and nonprofits a safer place to hold large deposits without having to use Wall Street banks.
• Including banks with a CAMELS rating of 3 — which are still considered adequately managed — gives more healthy community institutions a fair chance to compete for deposits.

Arguments opponents make

• Allowing institutions with a CAMELS rating of 3, which indicates some supervisory concerns, to accept larger volumes of reciprocal deposits could increase risk to the federal deposit insurance system if those banks run into trouble.
• Expanding the cap on reciprocal deposits based on total liabilities means the largest institutions in the bill's scope can accept very large amounts, which critics may argue goes beyond the community-banking goals the bill claims.
• Reducing the Federal Reserve's surplus fund by $28 million, even a decade from now, shifts a financial cost onto the broader system to pay for expanded deposit insurance benefits.

Tradeoffs

Giving more depositors access to insurance protection and keeping funds in local banks comes with the tradeoff of potentially exposing the deposit insurance system to greater risk by expanding eligibility to institutions with lower health ratings and allowing higher volumes of insured reciprocal deposits system-wide.

Current status in Congress: Passed House.

NewsClear — neutral news & congressional tracking · Bill of the Week