The Keeping Deposits Local Act modifies federal rules about how banks can use reciprocal deposits—a mechanism where banks share customer deposits with each other to spread risk. Currently, the law limits how many reciprocal deposits banks can hold without triggering stricter regulations designed for deposits obtained through brokers. This bill increases those limits significantly by allowing banks to exempt a percentage of reciprocal deposits from broker rules based on their size: 50 percent of deposits for banks under $1 billion in liabilities, declining to just 2 percent for banks exceeding $1 trillion. The bill also changes the health standard used to determine which banks can participate, shifting from a rating system to a CAMELS rating scale of 1-3 (considered financially sound). These changes would allow smaller and mid-sized community banks to hold more reciprocal deposits without facing regulatory restrictions, potentially making it easier for them to compete for customer deposits and maintain local lending capacity.
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