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Retirement Savings: How Much Should I Save Each Month?FDIC Proposes Interest Rate Restrictions on Weak Banks
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ON BY Ken Tumin
The FDIC just issued this press release regarding newly proposed interest rate restrictions for banks that are considered less-than-well capitalized. Unfortunately, this may lead to lower deposit rates. However, there aren't many less-than-well-capitalized banks. The FDIC says there were only 154 banks out of 8,300 banks nationwide with this designation as of third quarter 2008. But I have a feeling this number will be going up.
Another thing I found interesting in the press release is that the FDIC is recognizing how banks can easily offer deposit products nationwide. Here's an excerpt:
The FDIC has often restricted weak banks from offering brokered deposits. As I described in this 2008 post, regulators see brokered deposits as hot money deposits that are more volatile than a bank's core deposits. But online savings accounts can also be volatile. It's easy for customers to electronically transfer their money out of an internet bank that drops its rates too low. I like this freedom, but I could see how regulators may look at restricting internet rates from weak banks.
Another thing I found interesting in the press release is that the FDIC is recognizing how banks can easily offer deposit products nationwide. Here's an excerpt:
In recognition of the blurring of local deposit market boundaries brought about by the Internet and other innovations, the proposed regulation would also establish a presumption that locally prevailing deposit rates equal the national rates published by the FDIC.
The FDIC has often restricted weak banks from offering brokered deposits. As I described in this 2008 post, regulators see brokered deposits as hot money deposits that are more volatile than a bank's core deposits. But online savings accounts can also be volatile. It's easy for customers to electronically transfer their money out of an internet bank that drops its rates too low. I like this freedom, but I could see how regulators may look at restricting internet rates from weak banks.