Sponsor
French Hill
Representative · R-AR
Representative · R-AR
The bill expands small banks' ability to take custodial deposits and clarifies rules to protect deposit insurance, at the trade-off of potential concentration of large deposits at small institutions, reduced flexibility for struggling banks, and competitive distortions near the $10B threshold.
Small community banks (eligible institutions under $10B) can accept custodial deposits up to 20% of liabilities without those deposits being treated as brokered deposits, increasing access to insured funds and liquidity for those banks and their local customers.
Troubled or undercapitalized institutions are subject to defined rate caps and clearer rules, which reduces risky deposit-gathering practices and helps protect the deposit insurance fund and taxpayers from loss.
The bill provides regulatory clarity by defining key terms (e.g., custodial deposit, eligible institution, covered institution, well-capitalized), helping banks and regulators apply rules more consistently and reducing compliance uncertainty.
Permitting custodial deposits up to 20% of liabilities at small banks could concentrate large third‑party or uninsured deposits at those institutions, raising the risk to the deposit insurance fund and taxpayers if safeguards prove insufficient.
Interest-rate caps on undercapitalized institutions may reduce their ability to attract deposits quickly during stress, potentially accelerating liquidity pressures and increasing the chance of failure.
Banks close to the $10B asset threshold may face competitive disadvantages or incentives for regulatory arbitrage, which could reduce product availability or raise costs for local customers and small businesses.
Based on analysis of 2 sections of legislative text.
Allows small banks to accept defined custodial deposits up to 20% of liabilities without brokered-deposit treatment, but caps interest if the bank is not well capitalized.
Creates a narrow exception that lets small banks accept certain "custodial deposits" without treating them as brokered deposits, subject to limits. It excludes custodial deposits from the brokered-deposit rules up to 20% of an eligible bank’s total liabilities and restricts how high a bank that is not well capitalized may pay interest on those deposits. Defines which institutions qualify as eligible (under $10 billion in assets and meeting certain capital/rating or waiver conditions), what counts as a custodial deposit (funds held by a plan administrator under a plan), and sets an interest-rate cap for undercapitalized banks that accept custodial deposits based on local or FDIC national comparable-maturity rates.
Introduced September 11, 2025 by French Hill · Last progress May 21, 2026