Keeping Deposits Local Act
Summary
The "Keeping Deposits Local Act" aims to amend the Federal Deposit Insurance Act (FDIA) by modifying the treatment of reciprocal deposits held by insured depository institutions. Specifically, it adjusts the thresholds under which these deposits are not considered to be funds obtained through a deposit broker. This adjustment is intended to allow banks to attract and retain local deposits more effectively.
Expected Effects
The bill's passage would change how the FDIC classifies reciprocal deposits, potentially reducing regulatory burdens on smaller banks. This could lead to increased lending capacity within local communities. The bill also updates the definition of 'agent institution' by referencing CAMELS ratings, which could refine the criteria for institutions eligible for these deposit exemptions.
Potential Benefits
- Increased Lending Capacity: By easing restrictions on reciprocal deposits, banks may have more funds available for lending to local businesses and individuals.
- Reduced Regulatory Burden: The changes could simplify compliance for smaller banks, freeing up resources for other activities.
- Community Investment: Encouraging local deposit retention could lead to greater investment in local projects and initiatives.
- Financial System Stability: By strengthening smaller banks, the bill could contribute to a more diverse and resilient financial system.
- Modernized Definition: Updating the definition of 'agent institution' using CAMELS ratings provides a more current and relevant standard.
Potential Disadvantages
- Potential for Increased Risk: Easing restrictions on reciprocal deposits could increase risk-taking by banks, potentially leading to instability.
- Complexity: The tiered system for calculating deposit exemptions could be complex and difficult to administer.
- Unintended Consequences: The changes could have unforeseen effects on the broader financial system.
- Limited Impact on Large Banks: The benefits may disproportionately favor smaller banks, with limited impact on larger institutions.
- Oversight Concerns: Reduced regulatory scrutiny could lead to inadequate oversight of reciprocal deposit practices.
Constitutional Alignment
The bill appears to align with the Commerce Clause (Article I, Section 8, Clause 3) of the U.S. Constitution, which grants Congress the power to regulate interstate commerce. The regulation of banks and deposit insurance falls under this power, as it affects the national economy. There are no apparent violations of individual rights or freedoms as defined 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).