Community Bank Deposit Access Act of 2025
Summary
The Community Bank Deposit Access Act of 2025 amends the Federal Deposit Insurance Act. It aims to ensure that custodial deposits in well-capitalized insured depository institutions are not classified as funds obtained through deposit brokers under certain conditions. This exception applies if the custodial deposits do not exceed 20% of the institution's total liabilities.
Expected Effects
The act will allow community banks to attract and maintain custodial deposits more easily. This could lead to increased lending capacity and support for local economies. The act also restricts interest rates paid on custodial deposits by institutions that are not well-capitalized.
Potential Benefits
- Increased Lending Capacity: By excluding certain custodial deposits from being classified as brokered deposits, community banks may be able to attract more deposits and increase their lending capacity.
- Support for Local Economies: Increased lending capacity could translate into more loans for small businesses and individuals in local communities.
- Reduced Regulatory Burden: The act simplifies regulatory compliance for well-capitalized community banks by clarifying the treatment of custodial deposits.
- Greater Flexibility for Custodial Accounts: The act provides greater flexibility for institutions managing custodial accounts, allowing them to seek better deposit insurance coverage for their clients.
- Clarification of Deposit Definitions: By defining 'custodial deposit' and 'eligible institution,' the act provides clarity and reduces ambiguity in the application of deposit insurance regulations.
Potential Disadvantages
- Potential for Increased Risk: Relaxing the definition of brokered deposits could potentially increase risk if not carefully managed by the institutions.
- Complexity in Implementation: The definitions and conditions outlined in the act may introduce complexity in implementation and oversight.
- Uneven Playing Field: Larger institutions may view the act as creating an uneven playing field, as it specifically targets smaller community banks.
- Interest Rate Restrictions: The interest rate restrictions on custodial deposits for institutions that are not well-capitalized could limit their ability to attract deposits.
- Potential for Regulatory Arbitrage: Institutions may attempt to structure deposits to qualify as custodial deposits in order to avoid brokered deposit restrictions.
Constitutional Alignment
The Community Bank Deposit Access Act of 2025 appears to align with the Constitution's Article I, Section 8, which grants Congress the power to regulate commerce and establish uniform laws on the subject of bankruptcies throughout the United States. The act directly relates to the regulation of financial institutions and deposit insurance, falling under Congress's enumerated powers. The Act does not appear to infringe upon any individual liberties outlined in the Bill of Rights.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).