New Administration Outlook: FDIC Moves To Rescind Key, Controversial Proposals

The FDIC has signaled the reversal of key, controversial proposals from 2024. In doing so, it has provided welcome clarity on important areas that implicate banks of various sizes and charter types, allowing banks to focus on material risks rather than check-the-box exercises and deciphering (at times) incomprehensible standards. The FDIC has also delayed aspects of its final rule on the FDIC sign and advertising for digital channels to March 1, 2026.

But important developments on mergers and FBO/custodial accounts still are coming and we encourage banks and market participants to submit comments and stay engaged in other dialogue with the FDIC. There is an opportunity for federal banking regulators, such as the FDIC, and industry to work together to craft robust, sensible, and workable regulations that endure.

We summarize below where to find current (actual) legal requirements as well as important topics to keep in mind as the FDIC pivots to new policies.

Click to enlarge.

Key Takeaways

• The FDIC is proposing to temporarily reinstate its previous policy on bank mergers before comprehensively reviewing and developing new policies. The FDIC will accept comments on all aspects for 30 days upon publication in the Federal Register.
• The FDIC has withdrawn:
  • Brokered deposits proposed rule
  • Corporate governance proposed guidelines
  • Change in Bank Control Act (CBCA) proposed rule
• The FDIC is delaying compliance until March 2026 for its final rule on the FDIC sign and advertising for digital channels.
• The FDIC notably has not withdrawn or indicated how it will proceed on its proposed rule on FBO/custodial arrangements that would create new recordkeeping requirements similar to its framework under Part 370 for the timely determination of deposit insurance. This proposal followed on the heels of the recent failure of a middleware provider, which revealed unclarity or complexity in the records and roles to determine FDIC deposit insurance. The proposed framework, though it borrows from Part 370, isn't completely aligned and would be, in many respects, duplicative without substituted compliance. The acting FDIC Chair has called for a "more open-minded approach to innovation and technology adoption" and a "more transparent approach to fintech partnerships." This would be one area to do so.
• With the exception of the proposed rule on incentive-based compensation, these proposals were FDIC-specific and not interagency proposals. Interagency proposals from the Biden-era still include the proposed rules on the Basel III Endgame and the long-term debt to bail-in certain banks.

Background

The rescinded or delayed rules and policies largely followed the spring 2023 bank failures and the Biden Administration's push to close any and all perceived regulatory gaps that might contribute to a bank failure. The Biden-era proposed rules and policies were developed quickly and were criticized as often lacking a factual basis, adequate record, or clarity, and adding process for the sake of process (however effective such gating practices may have been). They also usually were accompanied by stern warnings of enforceability, a reflection of the general uptick in the FDIC's (and other federal banking agencies') use of public enforcement actions after supervisory criticisms surfaced in connection with the spring 2023 bank failures. In addition, they coincided with the Supreme Court's formal repudiation of the Chevron doctrine, thus curtailing agency discretion, and calling into question both the substance and the process by which these now-rescinded proposals were developed.

The FDIC's reversal on these initiatives is not surprising, given acting FDIC Chair Hill's dissents as FDIC vice chair at the time, as well as his stated priorities, including withdrawing "problematic proposals" and the second Trump Administration's deregulatory efforts, which we previously covered.

The Changes

1. Statement of Policy on Bank Merger Transactions: Proposed Temporary Return to FDIC's Previous Approach
   • The FDIC has proposed to rescind the agency's 2024 Statement of Policy on Bank Merger Transactions and temporarily reinstate the policy statement that was in effect prior to 2024.
     • The 2024 policy statement added uncertainty to the Bank Merger Act (BMA) process by eschewing past "bright line" standards for evaluating BMA applications in favor of a more principles-based, and therefore, subjective and agency-centric approach.
     • It also would have extended the FDIC's reach into non-bank mergers by, in many cases, requiring BMA applications when there was a transfer of (any) bank deposits from a bank to a non-bank—if the FDIC's position, as proposed, were taken literally.
   • The reinstatement of the previous policy statement would only be temporary. The FDIC is more broadly reevaluating its bank merger review process and has signaled an intent to comprehensively revise its merger policy in the future. The FDIC is accepting public comment on both the proposal to return to its previous policy statement and bank mergers more generally.
     • We anticipate that many banks and market participants will be interested in commenting on all aspects of these issues.
     • This is an opportunity for the FDIC and other bank regulators to align on merger policy issues. While the FDIC and OCC revised their merger policies/rules, the Federal Reserve did not.
     • This also is an opportunity for the FDIC to develop a modern framework for more routine bank mergers and transactions to allow existing banks to consolidate more easily, as needed. A more nuanced and risk-based approach would allow the FDIC to focus on mergers that raise novel, significant, or other risks. Such an approach would be largely consistent with the clarity and simplification of the FDIC's 2020 regulations for parent companies of industrial loan companies—similar to the Federal Reserve's contemporaneous codification of its controlling influence framework.
       
       
2. Brokered Deposits Proposed Rule: Withdrawn
   • The FDIC withdrew its 2024 brokered deposits proposal, which would have expanded the "deposit broker" definition, curtailed important exceptions, and allowed only banks, rather than their non-bank partners, to file primary purpose exception applications.
   • This reversal was largely expected, but is still a welcome relief to banks, fintechs, and other participants in the modern deposits market, which is materially different from when brokered deposits regulation first developed in the 1980s.
   • As a result, the revised brokered deposits regulation that was codified in 2020 remains effective and unaltered.
     
     
3. Corporate Governance Proposed Rule: Withdrawn
   • The FDIC withdrew its 2023 proposal on corporate governance guidelines.
   • The FDIC, unlike the Federal Reserve Board and the OCC, does not currently have corporate guidelines for the banks it supervises. The proposal would have created a number of prescriptive and process-oriented expectations for corporate governance, risk management practices, and board oversight. The proposal would have applied to FDIC-supervised institutions with $10 billion or more in total consolidated assets.
     • The proposal was largely criticized for being at odds with both state corporate law and certain Federal Reserve approaches for bank holding companies and other entities that have a controlling influence over a bank. The proposal also conflated the roles of management and the board of directors.
     • It was also criticized, given recent and serious allegations and findings of corporate governance issues at the FDIC.
   • As a result, the FDIC does not currently maintain or plan to propose express corporate governance guidelines. State-chartered, non-member banks' corporate governance continues to be determined by applicable state law.
     • However, we note that until meaningful supervisory reforms and appeals procedures are implemented, the FDIC (and other federal banking agencies) maintain robust and subjective supervisory powers over banks and their "management," which is often an outsized supervisory rating that has not always reflected the banks' financial performance or other market indicators.
       
       
4. CBCA Proposed Rule: Withdrawn
   • The FDIC withdrew its 2024 proposal that would have removed an exemption to the requirement for a bank to submit a notice to the FDIC for an acquisition of voting securities of a depository institution holding company.
     • This proposal would have required the filing of duplicative notices with both the FDIC and the Federal Reserve and, by the FDIC's own admission, could have discouraged capital investments in FDIC-supervised banks.
     • The proposal would have resulted in the FDIC more overtly reviewing the acquisition of shares of FDIC-supervised banks by "fund complexes"—including by indirect acquisitions.
   • As a result, the exemption under section 303.84(a)(8) remains unaltered.
     
     
5. Incentive-Based Compensation Arrangements Proposed Rule: Withdrawn
   • The FDIC withdrew its authorization to (eventually) publish the 2024 proposed rule on incentive-based compensation in the Federal Register that the FDIC developed with the OCC.
   • The FDIC, OCC, and Federal Reserve already have interagency guidelines on incentive-based compensation, as required by section 956 of the Dodd-Frank Act, which states that these agencies must issue interagency guidelines or regulations on the issue. The FDIC and OCC developed a proposed rule without the Federal Reserve in 2024. Even had these proposed rules been issued in the Federal Register, they would have been of no legal import. Nevertheless, the FDIC is cleaning up the docket.
   • As a result, the 2010 guidance on incentive-based compensation remains operative for FDIC-supervised institutions—as it is for OCC- and Federal Reserve-supervised institutions.
     
     
6. Sign and Advertising Rule on Digital Channels: Delayed Compliance
• The FDIC delayed the compliance date for certain provisions of the final rule on the FDIC sign and advertising FDIC deposit insurance through digital channels, ATMs, and similar devices. Full compliance with these amendments was scheduled to take effect on May 1, 2025. The FDIC has postponed the compliance date to March 1, 2026.
• The FDIC will continue to review the feedback received regarding implementation issues and potential consumer confusion that may result from requirements related to the display of the digital sign. After completing its review, the FDIC expects to propose changes to the regulation to address implementation concerns and potential sources of confusion.
  • The rule has been criticized (among other things) as looking to pop-up windows as a solution—frankly straining credulity, as modern browsers routinely include pop-up blockers by default.
  • The rule still largely contemplates users at desktop computers and does not meaningfully envision financial products on smaller devices, including phones, and wearable technology, such as watches and emerging virtual reality and vision-augmented interfaces.
  • More broadly, it demonstrates how the FDIC has not been a leader on modern, tech-forward approaches to financial services. It is another opportunity for a markedly different approach for the FDIC.

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Should you need additional analysis or guidance in connection with planning how to respond to or navigate these changes, the DWT financial services team is prepared to assist.