On December 15, 2020, the FDIC Board of Directors approved a Final Rule making certain revisions to the interest rate restrictions applicable to less than well capitalized institutions (as defined in Section 38 of the Federal Deposit Insurance Act), which are effective on April 1, 2021. The interest rate restrictions generally limit a less than well capitalized institution from soliciting deposits by offering rates that significantly exceed rates in its prevailing market.
The Final Rule redefined the "national rate" as the average of rates paid by all insured depository institutions and credit unions for which data is available, with rates weighted by each institution's share of domestic deposits. The "national rate cap" is calculated as the higher of: (1) the national rate plus 75 basis points; or (2) 120 percent of the current yield on similar maturity U.S. Treasury obligations plus 75 basis points. The national rate cap for non-maturity deposits is the higher of the national rate plus 75 basis points or the federal funds rate plus 75 basis points.
A less than well capitalized institution may use the "local rate cap" in place of the national rate cap for deposits gathered from within the institution's local market area. The Final Rule redefined the "local rate cap" for a particular deposit product as 90 percent of the highest rate offered on the deposit product by an institution or credit union accepting deposits at a physical location within the institution's local market area.
In accordance with Section 337.7(d), an insured depository institution that seeks to pay a rate of interest up to its local market rate cap shall provide notice and evidence of the highest rate paid on a particular deposit product in the institution's local market areas to the appropriate FDIC regional director. The institution shall update its evidence and calculations for existing and new accounts monthly unless otherwise instructed by the appropriate FDIC regional director, and retain such information available for at least the two most recent examination cycles and, upon the FDIC's request, provide the documentation to the appropriate FDIC regional office and to examination staff during any subsequent examinations.
Federal Deposit Insurance Corporation, National Rate Cap: 12-Month CD [NRC12MCD], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/NRC12MCD, December 8, 2022.