Q: In applying the rate caps, should an insured depository institution use the all-in cost of a deposit? Or should the bank use the annual percentage yield (APY) received by a deposit broker’s customers? For example, if a bank pays 2.75 percent APY but a deposit broker charges a 25 basis points fee on the deposit, should 2.75 percent or 2.50 percent be used to determine conformance with the interest rate restrictions?
A: In the above example, the rate restrictions would apply to the all-in cost of the deposit (the customer’s effective APY plus the 25 basis points fee or 2.75 percent). This treatment is consistent with the treatment mandated by the Consolidated Reports of Condition and Income, which include the following instruction:
“Include as interest expense on the appropriate category of deposits finders’ fees and brokers’ fees that represent an adjustment to the interest rate paid on deposits the reporting bank acquires through brokers. If material, such fees should be capitalized and amortized over the term of the related deposits. However, exclude fees levied by brokers that are, in substance, retainer fees or that otherwise do not represent an adjustment to the interest rate paid on brokered deposits.”