Community Bank Deposit Access Act of 2025

Floor Speech

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Mr. HILL of Arkansas. Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 5317) to amend the Federal Deposit Insurance Act to ensure that certain custodial deposits of well capitalized insured depository institutions are not considered to be funds obtained by or through deposit brokers, and for other purposes, as amended.

The Clerk read the title of the bill.

The text of the bill is as follows: H.R. 5317

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE.

This Act may be cited as the ``Community Bank Deposit Access Act of 2025''. SEC. 2. LIMITED EXCEPTION FOR CUSTODIAL DEPOSITS.

(a) In General.--Section 29 of the Federal Deposit Insurance Act (12 U.S.C. 1831f) is amended by adding at the end the following:

``(j) Limited Exception for Custodial Deposits.--

``(1) In general.--Custodial deposits of an eligible institution shall not be considered to be funds obtained, directly or indirectly, by or through a deposit broker to the extent that the total amount of such custodial deposits does not exceed an amount equal to 20 percent of the total liabilities of the eligible institution.

``(2) Definitions.--In this subsection:

``(A) Custodial deposit.--The term `custodial deposit' means a deposit that is not deposited at an insured depository institution in return for fees paid by the insured depository institution pursuant to an agreement with a third party and that would otherwise be considered to be obtained, directly or indirectly, by or through a deposit broker, if the deposit is deposited at 1 or more insured depository institutions, for the purpose of providing or maintaining deposit insurance for the benefit of a third party, by or through any of the following, each acting in a formal custodial or fiduciary capacity for the benefit of a third party:

``(i) An insured depository institution serving as agent, trustee, or custodian.

``(ii) A trust entity controlled by an insured depository institution serving as agent, trustee, or custodian.

``(iii) A State-chartered trust company serving as agent, trustee, or custodian.

``(iv) A plan administrator or investment advisor, acting in a formal custodial or fiduciary capacity for the benefit of a plan.

``(B) Eligible institution.--The term `eligible institution' means an insured depository institution that accepts custodial deposits, if the insured depository institution has less than $10,000,000,000 in total assets as reported on the consolidated report of condition and income as reported quarterly to the appropriate Federal banking agency and--

``(i)(I) when most recently examined under section 10(d) was assigned a composite rating of 1, 2, or 3 under the Uniform Financial Institutions Rating System (or an equivalent rating under a comparable rating system); and

``(II) is well capitalized; or

``(ii) has obtained a waiver pursuant to subsection (c).

``(C) Plan.--The term `plan' has the meaning given the term in section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002).

``(D) Plan administrator.--The term `plan administrator' has the meaning given the term `administrator' in section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002).

``(E) Well capitalized.--The term `well capitalized' has the meaning given the term in section 38(b).''.

(b) Interest Rate Restriction.--Section 29 of the Federal Deposit Insurance Act (12 U.S.C. 1831f), as amended by subsection (a), is further amended by adding at the end the following:

``(k) Restriction on Interest Rate Paid on Certain Custodial Deposits.--

``(1) Definitions.--In this subsection--

``(A) the terms `custodial deposit', `eligible institution', and `well capitalized' have the meanings given those terms in subsection (j); and

``(B) the term `covered insured depository institution' means an insured depository institution that while acting as an eligible institution under subsection (j), accepts custodial deposits while not well capitalized.

``(2) Prohibition.--A covered insured depository institution may not pay a rate of interest on custodial deposits that are accepted while not well capitalized that, at the time the funds or custodial deposits are accepted, significantly exceeds the limit set forth in paragraph (3).

``(3) Limit on interest rates.--The limit on the rate of interest referred to in paragraph (2) shall be not greater than--

``(A) the rate paid on deposits of similar maturity in the normal market area of the covered insured depository institution for deposits accepted in the normal market area of the covered insured depository institution; or

``(B) the national rate paid on deposits of comparable maturity, as established by the Corporation, for deposits accepted outside the normal market area of the covered insured depository institution.''. SEC. 3. DISCRETIONARY SURPLUS FUND.

(a) In General.--The dollar amount specified under section 7(a)(3)(A) of the Federal Reserve Act (12 U.S.C. 289(a)(3)(A)) is reduced by $4,000,000.

(b) Effective Date.--The amendment made by subsection (a) shall take effect on September 1, 2036.
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Mr. HILL of Arkansas. Mr. Speaker, I include in the Record the Congressional Budget Office estimate for the bill.

Mr. Speaker, I will speak in support of H.R. 5317, the Community Bank Deposit Access Act.

This is a bill that over my time in Congress I have introduced several times and worked with colleagues to extend the ability to attract deposits to local community banks to make them more competitive.

This bill works to essentially give community banks greater flexibility to access stable and reliable funding sources so that they can continue to meet the financial needs of the communities they serve.

Community banks, as we have talked about today, play a vital role in our local economies by supporting small businesses, farmers, and consumers who depend on them for access to credit and other essential financial services.

That is why it is important that our community institutions have access to a diverse and dependable set of funding sources so that they can continue to meet these demands.

One source of funding comes through custodial deposits, which are the funds placed at a bank by a third party on behalf of underlying customers or beneficiaries who own the funds but may not have a direct banking relationship with that institution.

Mr. Speaker, a few minutes ago, we talked about reciprocal deposits. Let's say I am a small business, and I have $500,000 as a typical average collected balance in my business, but I only have deposit insurance of $250,000. The reciprocal deposit bill that Mrs. Beatty offered a few minutes ago with Tom Emmer of Minnesota allows that other $250,000 for that small business to be covered for deposit insurance. That is very important and very useful to have that customer-bank service relationship.

Custodial deposits are similar, but what if it is a much larger amount of money, a much bigger business? Custodial deposits allow banks to serve their customer that way with one statement by seeing the money spread across more banks.

This is a cash management product that allows a local community bank to play a lead role in Treasury management for a larger commercial customer.

Let's say, for example, a landlord might place tenant security deposits in a custodial account at a local bank, even though the tenants remain the ultimate owner of those funds and, hence, the ability to be benefited by that.

These arrangements provide benefits to all of the parties involved. Banks gain access to stable, low-cost deposits, while customers and third parties benefit from the convenience of a more centralized account management function, along with the protections provided by deposit insurance.

The FDIC has long recognized this deposit insurance process and how it can apply on a pass-through basis, meaning that underlying funds remain insured so long as each beneficiary's share stays within the applicable deposit insurance limit.

My bill would expand access to these arrangements for banks under $10 billion in assets that maintain strong capital levels and sound supervisory ratings or otherwise receive a waiver from their primary bank regulator.

Custodial deposits are a stable relationship-based funding source that allows a community bank to support small businesses, families, and local economies.

These deposits can provide smaller institutions with access to depositors and funding relationships that might otherwise be out of reach and help diversify their funding base and improve their financial stability.

Yet, under current law, many of these deposits are treated the same as if they were brokered deposits and subject to rules that were never intended for these type of relationship accounts.

This outdated treatment creates unnecessary burdens for community banks and limits their ability to responsibly utilize custodial deposits to support lending in their communities.

By clarifying that custodial deposits are not brokered deposits, if they do not exceed 20 percent of the total liabilities of the community bank, my bill gives lenders the certainty they need to accept these funds and put that money to work in their communities.

This is a commonsense, bipartisan solution that strengthens community banks, supports local lending, and preserves the safety and soundness of the financial system without increasing the risk to our Deposit Insurance Fund.

Mr. Speaker, I urge all of my colleagues to support this bill, and I reserve the balance of my time.

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Mr. HILL of Arkansas. Mr. Speaker, I am prepared to close and reserve the balance of my time.

Mr. Speaker, let me say I appreciate the gentlewoman's engagement on deposit insurance policy at large. I think it is an important topic. She and I both share the importance of reviewing our deposit insurance system, make sure it is competitive, make sure it encourages safe and sound banking, make sure it doesn't expand in any way the moral hazard associated with too much reliance on a government safety net in any way that might encourage too great risk-taking.

She is right. We should do that in a data-dependent way and do that collectively, and we have had assistance in that regard from the FDIC and others.

I am grateful for her cooperation on moving the reciprocal deposit bill earlier today, Mrs. Beatty and Mr. Emmer's bill, this custodial deposit effort. Both of these bills help our community banks be more competitive across the country as they try to grow their business in the face of a lot of competition.

Mr. Speaker, I thank the gentlewoman for her support. I urge a ``yes'' vote on both sides of the aisle, and I yield back the balance of my time.

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Mr. HILL of Arkansas. Mr. Speaker, on that I demand the yeas and nays.

The yeas and nays were ordered.

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