The Housing Act’s New Reciprocal Deposit Legislation What It Means for American Banks By Joe Hooker, Chief Sales Officer IntraFi, ICBC Associate Member The recently enacted 21st Century ROAD to Housing Act marks a significant shift in how U.S. banks can use reciprocal deposits — an established but increasingly important tool for deposit growth and local lending. WHAT THE LAW CHANGES The new law amends the Federal Deposit Insurance Act to expand the amount of a bank’s reciprocal deposits that can be classified as “nonbrokered,” a designation that generally reflects more stable, relationship-based funding. Under the previous framework, reciprocal deposits counted as nonbrokered were capped at the lesser of 20% of a bank’s total liabilities or $5 billion. This one-size-fits-all limit often constrained banks’ ability to fully leverage reciprocal deposits, even when those funds were tied to long-term customer relationships. The 21st Century ROAD to Housing Act replaces that flat cap with a cumulative, tiered model based on the amount of a bank’s liabilities. Under the new formula, reciprocal deposits can be excluded from brokered deposit treatment up to: • 50% of the first $1 billion in liabilities, plus • 40% of liabilities between $1 billion and $10 billion, plus • 30% of liabilities over $10 billion. The total amount that can be counted as nonbrokered is now capped at $30 billion. For example, under the previous law, a bank with $1.5 billion in liabilities could count $300 million of reciprocal deposits as nonbrokered. The new law increases that number to $700 million. For a bank with $18 billion in liabilities, the amount of reciprocal deposits considered nonbrokered increases from $3.6 billion under the previous law to $6.5 billion. WHY RECIPROCAL DEPOSITS MATTER Ever since reciprocal deposits were invented 25 years ago, they have enabled banks to offer customers access to aggregate FDIC insurance on large balances while maintaining a single banking relationship. When reciprocal deposits are placed across a network of participating banks in increments below the standard $250,000 insurance limit, the placing bank receives matching deposits back. For customers, this structure provides enhanced safety without operational complexity. For banks, it helps attract more large, stable deposits from businesses, municipalities, nonprofits and high-net-worth individuals. Reciprocal deposits are particularly valuable because, as nonbrokered deposits, they behave more like “core” funding — sticky and relationship-driven — rather than rate-sensitive brokered deposits. Policymakers and industry groups have increasingly recognized this distinction, especially after the bank failures of 2023 highlighted the risks associated with uninsured deposits. 16 | INDEPENDENT REPORT
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