Passed
393 Yea16 Nay21 Not voting2/3 required
HR-5317-119
Received in the Senate and Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
Sponsored by J. Hill (R-AR)
What it does
This bill would amend the Federal Deposit Insurance Act to exempt certain "custodial deposits" — funds held by banks, trust companies, or fiduciaries on behalf of third parties — from being classified as "brokered deposits" at eligible community banks, up to 20% of the bank's total liabilities. Eligible banks must have less than $10 billion in total assets and meet minimum financial health standards. The bill also caps the interest rates that banks accepting these deposits while not "well capitalized" may pay. Separately, it would reduce the Federal Reserve's discretionary surplus fund by $4 million, effective September 1, 2036.
Who benefits
Community banks (under $10 billion in assets) that accept custodial or fiduciary deposits, as they would face fewer regulatory restrictions on those funds. Trust companies, plan administrators, and investment advisors acting as fiduciaries who place deposits on behalf of clients. Retirement plan participants (ERISA plans) whose administrators could more easily place funds at community banks. Consumers and small businesses in communities served by these banks, who may gain broader access to deposit products. Fintech companies and payment platforms that hold customer funds in custodial accounts at banks.
Who is hurt
Larger banks and online banks that compete for the same deposits and currently operate under stricter brokered deposit rules. The FDIC's Deposit Insurance Fund could face modestly elevated risk if custodial deposits at weaker community banks prove less stable than traditional deposits during a bank stress event. Depositors at banks that accept these funds while not well-capitalized may face indirect risk if interest rate caps are insufficient guardrails. Taxpayers who ultimately backstop FDIC insurance could bear costs if the rule change contributes to bank failures.
Supporters argue
Supporters argue that the current brokered deposit rules were designed to prevent risky deposit-gathering by troubled banks, but have been applied too broadly to penalize routine custodial and fiduciary arrangements that pose little systemic risk. They contend that community banks are unfairly disadvantaged when trust companies, ERISA plan administrators, and fintech custodians cannot place deposits with them without triggering costly regulatory restrictions — pushing funds toward larger institutions. The 20% cap and well-capitalized eligibility requirement, they argue, provide meaningful safeguards while restoring competitive balance for the roughly 4,500 community banks that serve local economies.
Opponents argue
Opponents argue that brokered deposit restrictions exist precisely because rate-sensitive, third-party-placed funds tend to flee quickly during bank stress, amplifying failures — a dynamic documented in the savings and loan crisis of the 1980s and more recently in the 2023 failures of Silicon Valley Bank and Signature Bank. They contend that carving out custodial deposits from these rules, even with a 20% cap, could allow community banks to quietly accumulate a large base of potentially volatile funding, and that regulators may lack the supervisory capacity to monitor compliance across thousands of small institutions before problems emerge.
Constitutional context
Congress has broad authority to regulate banking and deposit insurance under the Commerce Clause (Art. I, §8, cl. 3), and the FDIC's enabling statute has long been upheld as a valid exercise of that power. No significant constitutional tension is present in this bill, as it modifies an existing statutory definition rather than creating new agency authority or imposing property restrictions.
Checks and balances
Congress gains authority by directly writing the exemption into statute, limiting FDIC discretion; the FDIC retains examination and enforcement authority over eligible institutions, and the waiver process under existing subsection (c) provides a residual regulatory check.
Historical precedent
The FDIC has previously issued rules and guidance modifying the scope of brokered deposit restrictions, including a 2020 rulemaking that created new exemptions for certain deposit arrangements, reflecting ongoing regulatory debate over how broadly the 1989 FIRREA brokered deposit rules should apply.
Passed