Keeping Deposits Local Act

The bill would amend the Federal Deposit Insurance Act to replace the existing flat cap on reciprocal deposits with a tiered system tied to each institution's total liabilities. Institutions could hold reciprocal deposits outside the brokered-deposit classification equal to 50% of liabilities up to $1 billion, plus 40% of liabilities between $1 billion and $10 billion, plus 30% of liabilities between $10 billion and $250 billion. It would also widen the eligibility criteria for participating institutions, allowing those with a CAMELS rating of 1, 2, or 3 — not only those rated "outstanding" or "good" — to accept such deposits.

The bill would also require the FDIC, in consultation with the Federal Reserve, to study reciprocal deposit performance since 2018 and report findings to Congress within six months of enactment. A separate provision would reduce the Federal Reserve's Discretionary Surplus Fund by $28 million, effective September 1, 2036, serving as a budget offset.

Insured depository institutions — particularly community banks and mid-sized banks — that participate in reciprocal deposit networks. Large depositors such as municipalities, nonprofit organizations, and businesses that seek FDIC insurance coverage on balances exceeding $250,000 would also be affected, as would the FDIC and the Federal Reserve Board, which are directed to conduct the study.

For community and mid-sized banks, larger reciprocal deposit limits would allow them to compete more directly with large banks for big-balance customers who currently favor institutions perceived as "too big to fail." Institutions previously locked out at a CAMELS 3 rating would gain new access to these products, potentially broadening deposit bases and keeping large local deposits — from cities, charities, and businesses — closer to home.

The bill's core changes to the Federal Deposit Insurance Act would be self-executing upon enactment, immediately altering how regulators classify reciprocal deposits for eligible institutions. The FDIC would need to update examination guidance to reflect the new CAMELS 3 eligibility threshold and the tiered liability-based limits. Separately, the FDIC must complete a comprehensive study of reciprocal deposit usage, risks, and benefits — drawing on quantitative and qualitative data — and deliver a written report to the House Financial Services and Senate Banking Committees within six months of enactment. The Federal Reserve surplus-fund reduction takes effect on a delayed date of September 1, 2036.