The FDIC has issued additional guidance on whether a bank that is not well capitalized may pay deposit rates that exceed the national rate caps posted by the FDIC. Financial Institution Letter 69-2009 released on December 4 describes the procedures and criteria the FDIC will use to determine whether a bank subject to interest rate restrictions under FDIC regulations is operating in a high-rate area, and may therefore use the prevailing rates in its market area rather than the average national rate to determine conformance with the interest rate restrictions. A bank subject to the interest rate restrictions under Section 337.6 of the FDIC’s regulations may request a determination that it is operating in a high-rate area by sending a letter to its FDIC regional office, specifying the bank’s market area(s). The FDIC will base its decision on average rates for the geographic area in which the bank is operating, using state(s), metropolitan statistical area(s), and local area data. If the standardized rate data for the bank’s market area exceed the national average for a minimum of three of the four deposit products reviewed by at least 10 percent, the FDIC will generally determine that the bank is operating in a high-rate area. The non-jumbo deposit products considered are money market deposit accounts and 12-month, 24-month and 36-month CDs. Banks that submit determination requests by December 31, 2009 will receive a response by January 30, 2010. If the FDIC determines that a bank is not operating in a high-rate area, it will instruct the bank to begin using the national rate caps by March 1, 2010. Any bank that is not well capitalized and submits a determination request after December 31, 2009 must use the national rate caps until it has received notice that it is operating in a high-rate area.
Nutter Notes: The FDIC approved an amendment to Section 337.6 of its regulations in May to change the way the FDIC administers the statutory restrictions on deposit interest rates paid by banks that are less than well capitalized. Effective January 1, 2010, a bank that is subject to the interest rate restrictions under Section 337.6 is required to use the “national rate” to determine conformance with the restrictions unless the bank is operating in a high-rate area. The amendment redefines the national rate as “a simple average of rates paid by insured depository institutions and branches for which data are available” and deems the national rate to be the prevailing rate for all market areas. A bank that is subject to the restrictions and that believes it is operating in an area where the rates paid on deposits are higher than the “national rate” can use the local market to determine conformance with the interest rate restrictions only if it seeks and receives a determination from the FDIC that the bank is operating in a high-rate area. If such a determination is granted, the bank’s deposit rates must not exceed by more than 75 basis points the prevailing rate cap for the bank’s market area. The FDIC’s determination is effective for the calendar year in which it is granted, but will be rescinded by written notice if, during the calendar year, the bank’s market area no longer meets the requirements for being a high-rate area. Banks operating in high-rate areas must apply for determinations annually.