FDIC Deposit Rule Gives Banks More Room for Business Cash

For banks seeking a larger share of their commercial customers’ operating cash, new federal deposit rules may help those efforts.

The Federal Deposit Insurance Corp.’s interim final rule, adopted Aug. 27 and effective Tuesday (Sept. 1), substantially increases the amount of reciprocal deposits that qualifying banks can accept under the statutory exception from brokered-deposit treatment. Through the network, the originating bank receives an equal aggregate amount of reciprocal deposits placed by other participating institutions.

The rule implements changes Congress enacted in July and replaces a general cap that had been the lesser of $5 billion or 20% of an institution’s total liabilities. The new calculation permits 50% of the first $1 billion in liabilities, 40% of liabilities between $1 billion and $10 billion, and 30% of liabilities above $10 billion up to a statutory ceiling that produces a maximum general cap of $30 billion.

For business banking, the importance of the change lies in what reciprocal deposits allow a bank to do with a customer relationship.

A company may need to keep millions of dollars readily available for payroll, supplier payments, taxes and other operating expenses. The standard FDIC insurance amount remains $250,000 per depositor, per insured bank, for each account ownership category.

Reciprocal deposit arrangements allow participating banks to place portions of a customer’s deposits at other insured banks, generally in amounts designed to remain within applicable insurance limits. The originating institution receives deposits from other banks in the network in return. The customer can therefore maintain its principal relationship with one institution while eligible funds are distributed among multiple insured banks.

More Capacity Around the Operating Account

That distinction is particularly relevant to commercial banking because deposits rarely stand alone.

Recent PYMNTS coverage of regional-bank earnings found deposits growing alongside commercial lending at several institutions. KeyCorp said approximately 91% of its commercial loans were made to customers that also used the bank for deposits, payments or capital-markets services. At Regions, small-business balances accounted for just over 30% of the quarter-over-quarter growth in average noninterest-bearing deposits.

Those relationships can make operating deposits particularly valuable. A company keeping its working cash at a bank may also use that institution to collect receivables, make supplier payments, originate payroll, manage liquidity and obtain credit.

Banks have consequently been putting more emphasis on the services surrounding those balances. Additional PYMNTS’ examination of second-quarter bank results found banks investing in treasury and payments capabilities as corporate finance departments sought better cash-flow visibility, forecasting and working-capital tools.

The reciprocal-deposit rule affects one part of that relationship: how much deposit capacity qualifying institutions can accommodate under the statutory exception.

For banks covered by the change, the additional capacity may be useful when serving companies whose operating balances would otherwise substantially exceed the amount insured at one institution.

The timing also intersects with banks’ broader efforts to gather commercial deposits.

PYMNTS reported in July that banks are using several models to attract deposits through FinTech and embedded-finance relationships. More recent PYMNTS coverage of banking-as-a-service strategies shows that institutions differ considerably in how much partner-generated deposit funding they want to retain on their balance sheets.

Reciprocal deposits address a different part of the deposit business, but the underlying balance-sheet question is related: Banks have choices about how they source deposits, how much they retain and how those deposits fit with the services they provide.