Alert December 08, 2009

FDIC Issues Further Guidance Concerning Process for Determining if Depository Institution Subject to Interest Rate Restrictions is Operating in a “High-Rate Area”

The FDIC issued a financial institution letter (“FIL-69-2009“) providing guidance to FDIC‑insured depository institutions (“DIs”) that are subject to interest rate restrictions, concerning the process under Section 29 of the Federal Deposit Insurance Act and Section 337.6 of the FDIC Rules and Regulations (“Section 337.6”) for determining whether a DI is operating in a “high-rate area”.  FIL-69-2009 updated FDIC guidance previously provided in FIL-62-2009.

As described in the November 17, 2009 Alert, Section 337.6 restricts the use of brokered deposits and limits interest rates paid on interest-bearing deposits solicited by less than well-capitalized DIs and DIs that meet the quantative tests for being “well-capitalized,” but are subject to a capital maintenance provision issued by a federal banking regulator within a formal written agreement, consent order, order to cease and desist, capital directive or prompt corrective action directive.  Effective January 1, 2010, a DI subject to the interest rate restrictions under Section 337.6 is required to use the “national rate” to determine whether it complies with regulatory requirements.  A DI, however, that believes it is operating in a geographical area where the rates paid on deposits are higher than the “national rate” may seek a determination from the FDIC that the DI is operating in a “high‑rate area.”  FIL-69-2009 states that the DI making a request to the DI should specify its market area and regardless of the FDIC’s determination, DIs must use the national rate caps to determine conformance for all areas outside of the DI’s market area.