Dedicated to Deposits: Deals, Data, and Discussion

The FDIC's Weekly National Rates and Rate Caps

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The FDIC has started posting average deposit rates and rate caps. Here's the link to their rate tables. It doesn't look pretty. The rate cap for a 12-month CD is only 2.02%.

These rate tables are associated with the FDIC's new rule on "Interest Rate Restrictions on Institutions That are Less Than Well Capitalized." (see FDIC's press release). Here's how the FDIC describes this new rule:
The final rule defines nationally prevailing deposit rates as a direct calculation of those national averages, as computed and published by the FDIC based on data available to it. Reliance on the Treasury yields in the regulation would be discontinued. In recognition of the blurring of local deposit market boundaries brought about by the Internet and other innovations, the final rule also establishes a presumption that locally prevailing deposit rates equal the national rates published by the FDIC. This presumption could be overturned by evidence presented by banks to the FDIC.

The rule applies only to the small minority of banks that are less than well capitalized. As of first quarter 2009, there were 248 banks that reported being less than well capitalized, out of more than 8,200 banks nationwide.

The rule is effective January 1, 2010. Effective immediately, the FDIC will regularly publish national rates and caps, and permit institutions that are less than well capitalized to avail themselves of these rates as a safe harbor for complying with the statutory interest rate restrictions.

According to the FDIC, the rule would only apply to 248 of the 8,200 bank that reported being less than well capitalized (as of Q1 2009). However, it could apply to more banks. The CEO of Libertad Bank provided comments on this new rule earlier this year. You can read his comments here. According to the CEO, his bank is subject to these rate restrictions even though his bank is well capitalized:
I am an executive of a financial institution that is currently subject to Part 337.6 rate restrictions. While the institution I work for has capital ratios that would easily classify the institution as well capitalized if measured by those ratios, the institution previously consented to a written agreement with the FDIC that included a capital maintenance provision, and it is therefore classified as 'adequately capitalized' regardless of its capital ratios, and is therefore subject to Part 337.6 rate restrictions.

I also wonder if other banks may be pressured to lower rates in a way that Ally Bank is being pressured by the ABA (see post).

The Libertad Bank CEO provides many details about the problems of these national rate caps. The average rates are too simplistic. There's not only the issue of these not reflecting internet rates, but also the issue of odd terms. Here's how the CEO describes the issue of odd terms:
When the Law and Regulations were originally contemplated, odd rate maturities were the exception not the rule. Today most financial institutions offer below market interest rates on standard term/maturity fixed-rate time deposits, while offering much more attractive interest rates on odd-term time deposits. Financial institutions do this to match their funding to their liquidity needs and projections, but also as a marketing tactic to make it difficult to directly compare one institution’s time-deposit offerings to another institution’s (and in this case making it difficult, if not impossible, for both banks and the FDIC to use simple averages calculated from ‘standard term maturity’ time deposit data to determine prevailing market interest rates).

There's also the issue of rates related to reward checking accounts. The tables only include Interest Checking, and as you might expect, the average rate is very low. There's no inclusion of reward checking accounts, and the Libertad CEO describes this issue on page 10 of his comments.

If you want to give your opinions on this rule, I included contact information in my ABA-letter post.

Thanks to the reader who emailed me the link to this FDIC rate table.


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Comments
7 Comments.
Comment #1 by CA (anonymous) posted on
CA
Can't the banks get around this by just offering periodic cash bonuses for opening accounts/making deposits/using ATM cards/using Billpay/attaining tier level minimums? If I was a bank officer, I would just laugh, and institute a monthly cash bonus equal to the amount of 5+% APR with daily compounded interest rates based on daily account balances. Who needs interest rates anyway when the customer can be rewarded and/or compensated via different/unregulated means?

1
Comment #2 by Anonymous posted on
Anonymous
.

National Rate? Ha!

Missing are 1) reward checking 2) installment savings 3) bump-up CDs

FDIC is out to **** savers.

Maybe the banks will/should create some hybrid products so as comply with the letter of the "final rule" but rape the spirit of the "final rule" anyways.


.

1
Comment #3 by Anonymous posted on
Anonymous
Is there a posted list somewhere showing the current roster of "less than well capitalized banks" in the FDIC's eyes???

That would help people know if an institution where they have an account, or are considering one, is subject to these new rules...

1
Comment #4 by Angelo_Frank (anonymous) posted on
Angelo_Frank
Thus, according to the National Rate Table, Ally Bank would be restricted to offering .97% interest rate on it's savings account? Although this is scheduled to go in effect Jan 2010, I can see the pressure on Ally, and others, to start lowering their rates very soon.

1
Comment #5 by Anonygal (anonymous) posted on
Anonygal
What a joke! The FDIC rep told me the list is confidential to prevent a run on the banks! After many calls and emails I finally got someone to mail me a page of urls I could use to try to figure out for myself how they come to their criteria for who is and isn't a well-capitalized bank!

I told them they were making decisions on our savings rates and we taxpayers should have a right to know how they come to these decisons. But it's the government and it seems only the "certain few" get to know what is going on.

1
Comment #6 by Anonymous posted on
Anonymous
The national interest rate is always lower than real inflation rate. By limiting the max interest rate a bank can offer, it's forcing people to put money into stock market, or other investment. Everybody knows stock market is risky, especially for people close to or in retirement. If all money goes to stock market, all the executives can started to get good bonus again, and when it crash, it's normal people who get ****ed.

What ABA did is taking away the freedom and eliminating competitions.

Today Alliant CU lowered their interest rate by another .25 points, other Credit Unions are lowering interest rate too. Soon the national rate will be 1%, or .5%, who knows.

We should all write emails or letters to FDIC and our congress man to strongly oppose to this regulation. if they really want it, let people to decide, to vote on it.

1
Comment #7 by Anonymous posted on
Anonymous
FDIC is sticking the finger where there is no business of theirs.
Since when FDIC decides the interest rates paid by the banks.

1