Technical corrections only. The only change between v3 and v4 is the addition of the Clerk's name, "KEVIN F. MCCUMBER," to the attestation at the end of the bill. No substantive policy changes were made.
Keeping Deposits Local Act
- Sponsor
- Rep. Emmer, Tom [R-MN-6]
- Committees
- Banking, Housing, and Urban Affairs Committee (primary)
- Last action
- May 21, 2026
Bottom line
The bill aims to ease regulatory burdens on banks using reciprocal deposits, particularly for mid-sized institutions, while also requiring a study on their use and making a future, minor adjustment to the Federal Reserve's surplus fund.
What it actually does
This bill amends the Federal Deposit Insurance Act to expand the amount of reciprocal deposits that are not considered brokered deposits for insured depository institutions, using a tiered system based on total liabilities. It also broadens the definition of an "agent institution" eligible for these reciprocal deposit programs by including those with a CAMELS rating of 3, in addition to 1 or 2. Furthermore, the bill mandates a study on reciprocal deposits by the FDIC and reduces the Federal Reserve's Discretionary Surplus Fund by $28 million, effective September 1, 2036.
Proponents argue
Supporters argue that the current regulations on brokered deposits are overly restrictive and penalize institutions for using a safe and efficient way to manage liquidity and offer higher FDIC insurance coverage to customers. They contend that expanding the exemption for reciprocal deposits, especially for institutions with a CAMELS rating of 3, will allow more banks to compete effectively, serve their communities, and manage their balance sheets without posing undue risk to the financial system. The study is seen as a way to gather data to further inform future policy.
Opponents contend
Critics might argue that loosening the definition of brokered deposits, even for reciprocal arrangements, could increase systemic risk by allowing less financially sound institutions (those with a CAMELS 3 rating) to rely more heavily on potentially volatile funding sources. They may contend that brokered deposits, by their nature, can be less stable than core deposits and that expanding their exemption could undermine the intent of regulations designed to protect the Deposit Insurance Fund. Some might also question the rationale for the specific reduction in the Federal Reserve's surplus fund.
The bill is very short and clear, making it highly accessible for a reader to understand its direct legislative changes within a few minutes.
Section 2, amending Section 29(i)(1) of the Federal Deposit Insurance Act
Expanded Exemption for Reciprocal Deposits from Brokered Deposit Classification
This provision changes the rules for how much of a bank's reciprocal deposits (deposits placed through a network where banks exchange deposits) are not counted as "brokered deposits." Brokered deposits face stricter regulatory scrutiny. The bill introduces a tiered system: 50% of liabilities up to $1 billion, 40% for liabilities between $1 billion and $10 billion, and 30% for liabilities between $10 billion and $250 billion are exempt. This generally increases the amount of reciprocal deposits that banks can hold without them being subject to brokered deposit rules.
Supporters argue
Supporters argue this change recognizes the stability of reciprocal deposits, which are often sticky and less prone to flight than other brokered funds. They contend it allows banks, especially community banks and mid-sized institutions, to better manage liquidity and compete for deposits without being unfairly penalized by regulations designed for more volatile brokered funds.
Critics contend
Critics might argue that any expansion of brokered deposit exemptions, even for reciprocal deposits, could introduce additional risk into the financial system by allowing banks to rely more on non-core funding. They may contend that the tiered structure could still allow larger institutions to take on more risk without adequate oversight.
Tradeoffs
The provision balances the desire to provide regulatory flexibility and support bank liquidity management against concerns about potential systemic risk and the stability of the Deposit Insurance Fund.
Section 3, amending Section 29(i)(2)(A)(i) of the Federal Deposit Insurance Act
Expanded Eligibility for Agent Institutions
This section modifies the criteria for an "agent institution" – a bank that places reciprocal deposits. Previously, an agent institution needed a CAMELS rating of 1 or 2 (indicating strong financial health). This amendment expands eligibility to include institutions with a CAMELS rating of 3, which signifies satisfactory but not exceptional performance. This means more banks will qualify to participate in reciprocal deposit programs without their deposits being classified as brokered.
Section 4
FDIC Study on Reciprocal Deposits
This section mandates that the Federal Deposit Insurance Corporation (FDIC), in collaboration with the Federal Reserve, conduct a comprehensive study on reciprocal deposits. The study must analyze their performance since 2018, usage by different bank sizes, behavior during periods of financial stress, and the types of end-user depositors. It also requires a comparison to other deposit arrangements and an analysis of both the benefits and potential risks of reciprocal deposits. A report summarizing these findings is due to Congress within six months.
This section reduces the dollar amount specified under section 7(a)(3)(A) of the Federal Reserve Act by $28,000,000. This effectively transfers $28 million from the Federal Reserve's Discretionary Surplus Fund to the U.S. Treasury.
Section 5
Why it matters:It is common for bills to include unrelated provisions, sometimes referred to as "riders," or to make minor fiscal adjustments in less prominent sections. The delayed effective date could be to align with future budget cycles or to mitigate immediate fiscal impact.
Case for: Proponents might argue that this is a minor, technical adjustment to the Federal Reserve's balance sheet that contributes a small amount to the Treasury, potentially offsetting other costs or simply optimizing the fund's level.
Case against: Critics might argue that such a reduction, even small, could subtly impact the Federal Reserve's financial independence or its ability to manage its own operations, though the amount is relatively small in the context of the Fed's overall balance sheet.
Estimated impact: A direct reduction of $28,000,000 from the Federal Reserve's surplus fund, transferred to the Treasury, effective September 1, 2036.