Troutman Pepper Locke Partner James Stevens will serve as a panelist for “The 21st Century ROAD to Unlocking Community Bank Growth” webinar, hosted by S&P Global Market Intelligence on September 17. The webinar will bring together industry leaders to examine how the 21st Century ROAD to Housing Act could reshape the community banking landscape, with discussion covering reciprocal and brokered deposit treatment, new bank formation, and challenges facing rural depository institutions. Register here.
Why This Matters for Community Banks
The Act takes aim at one of the most persistent pain points in community banking: the risk that everyday deposit relationships get swept into the regulatory definition of “brokered deposits.” Two provisions in particular deserve attention.
Section 901 – Custodial Deposit Exception. The Act creates a new statutory exception to brokered deposit classification for “custodial deposits” held at eligible banks, up to 20% of the institution’s total liabilities. A custodial deposit is one placed through an institution acting in a formal custodial or fiduciary capacity, and critically, not in exchange for referral fees paid by the receiving institution. That distinction targets arrangements driven by a depositor’s need for insurance coverage rather than a commercial referral relationship. Eligible banks must have less than $10 billion in total assets, a CAMELS composite rating of 1, 2, or 3, and be well capitalized or have obtained an FDIC waiver. This exception is particularly significant for community banks engaged in payment services partnerships or other custodial arrangements that have faced uncertainty about brokered deposit classification under the existing framework.
Section 902 – Expanded Reciprocal Deposit Safe Harbor. The Act significantly expands the reciprocal deposit safe harbor first established in 2018, replacing the prior fixed cap (the lesser of $5 billion or 20% of total liabilities) with a tiered liability-based formula: 50% of the first $1 billion in total liabilities, 40% of the next $9 billion, and 30% of liabilities between $10 billion and approximately $96.3 billion, up to a maximum of $30 billion. The Act also broadens eligibility by updating the definition of “agent institution” to include institutions with a CAMELS composite rating of 1, 2, or 3, replacing the prior “outstanding or good” standard and opening the door for community banks previously excluded. The Act further directs the Federal Deposit Insurance Corporation (FDIC) to conduct a comprehensive study of reciprocal deposits with a report to Congress due within six months of enactment.
On August 27, the FDIC approved an interim final rule implementing § 902, effective September 1, 2026, which also provides long-awaited clarifications on reciprocal deposit receipt, requalification timing, and Call Report reporting, with updated Federal Financial Institutions Examination Council guidance expected by year-end.
Join The Conversation
James Stevens will discuss these developments and more at the webinar on September 17. We encourage community bank executives, compliance officers, and other industry stakeholders to attend.
Recent Comments