On Friday, March 18, 2009, FDIC Chairman Sheila Bair addressed the inclusion of all branches in the calculation of local rates in a speech at the ICBA convention in Orlando.  This modification may (1) create new or renewed opportunities for community banks to apply for, and receive, high rate area determinations, and (2) increase the relevant local rate for institutions operating in high rate areas.

As some of you may know, last year we changed the rule for complying with the statutory interest-rate restrictions for banks that are less than well capitalized. The new regulation includes a streamlined safe-harbor for compliance using a national rate schedule that is published on the FDIC’s website. The rule also builds in the flexibility to identify high-cost areas. As we make these judgments, one issue that can be material in some markets is the presence of multiple branches of large banks.

As I mentioned earlier, the largest banks enjoy lower average funding costs – and the differential appears to be rising. In our judgment, this trend is driven at least in part by the market perception that some of these banks are too big to fail. It was never our intent for this regulation to disadvantage smaller banks. That is why, as of today, we have amended the question and answer document on our website to clarify that the FDIC will, as appropriate, drop multiple branches of the same banks from the calculation of locally prevailing deposit rates. I would point out that this was an issue that was flagged for us by members of our Community Bank Advisory Committee, who have made many useful suggestions like this in the meetings we have held so far. (emphasis added)

The FDIC has amended the question and answer document attached to Financial Institution Letter FIL-69-2009.

Evidence of the average rates or effective yields in a particular market area may include (but is not limited to) the following: (1) evidence as to the rates paid by other insured depository institutions in that market area; (2) evidence as to the rates paid by credit unions in that market area if the FDIC determines that the insured depository institution in question competes directly with the credit unions; and (3) evidence as to the different rates paid on different deposit products in that market area (though the FDIC will not be obligated to recognize all alleged distinctions among various deposit products as explained in greater detail below).

The FDIC recognizes that in the current environment, the spread between the funding costs for community banks and larger banks has widened in a way that reflects a variety of factors, including market perceptions about the likelihood of government support for institutions of various sizes. The materiality of this issue will vary across different geographic areas. Accordingly, in calculating prevailing local interest rates and comparing these to the national rate for the purpose of identifying high cost areas, the FDIC will, when appropriate, exclude the rates offered by multiple branches of the same bank.


The prevailing rate in a market area generally is the average of rates offered by other FDIC insured-depository institutions and branches in the geographic market area in which the deposits are being solicited. In some cases, however, the FDIC may exclude branches in determining whether a bank is operating in a high-rate area (as discussed above). In any event, assuming the bank is operating in a high-rate area, the bank will be allowed to offer the prevailing local rate plus 75 basis points. The prevailing or average local rate will be based on one rate per institution for each product based on size (for example, a one year certificate of deposit less than $100,000) or one rate per institution and branch for each product based on deposit size. The methodology should be consistent across product types, and institutions should not use an all branch approach for some competitors and an entity only approach for other competitors.

The revised question and answer document also provides additional clarification regarding the treatment of “rewards checking” accounts, or other forms of deposit accounts that offer premium rates in exchange for the depositor meeting various conditions.  The clarification continues the FDIC position that such distinctions to not constitute a different type of deposit, and thus are not subject to different interest rate caps.  However, such products can be used in calculating the average rates paid on that type of account generally, i.e. checking, and thus, if in place at other branches in the market, can raise the local market cap rate on checking accounts generally.

As a final reminder, every institution seeking to rely on higher local rates must have received an individual high rate area determination from the FDIC.  Institutions cannot rely on high rate area determinations received by other banks, or by FDIC determinations that certain markets, such as the State of Georgia, are generally high rate areas.