
As the demand for funding increases, banks often turn to wholesale advances, brokered CDs, and rate promotions, increasing costs and volatility, while some of the most stable sources of funding are already in-house.
Call Report data show the squeeze. Bank margins tightened in the first quarter of 2026. The industry’s net interest margin fell to 3.31 percent, down eight basis points from the prior quarter, as loan yields fell faster than deposit costs. When a bank needs funding it does not already have, it sources it through generally more expensive channels. Federal Home Loan Bank advances due within a year ran a weighted-average 3.85 percent at March 31, 2026, and brokered certificates of deposit price off the same market. Someone else sets that rate, and the funding leaves when the deal matures.
Here is the part that rarely makes the funding conversation. Many banks buy funding in wholesale markets while a deposit source of comparable stability sits inside their own building, in the trust and wealth departments, and leaves the balance sheet by default. Nationwide, money market fund assets reached $7.93 trillion for the week ended August 12, 2026, and a meaningful share of that total is fiduciary and wealth cash that a trust or custody desk sweeps out each day. That cash never stops being client money. It simply funds someone else’s balance sheet, because no one ever made an active decision to keep it.
A change in the law, the 21st Century ROAD to Housing Act, makes that default more expensive to leave in place. Section 902 of the law raises the cap on reciprocal deposits a bank can treat as non-brokered, so a bank with a trust or wealth business can bring more of that cash back as relationship funding.
A Funding Source the Bank Already Has
Start with where the cash goes. When a trust, custody, or wealth account holds uninvested cash, the fiduciary has to place it somewhere safe and liquid, and the long-standing default is a money market fund. The mechanics are automatic. A trust or custody platform sweeps the available cash in each account into a money market fund every business day, and none of it touches the bank’s own balance sheet.
The default persists for reasons that are entirely rational from the trust side. A money market fund is a defensible fiduciary choice, the operations are built and running, and the arrangement often earns the trust department a fee. Nothing about it looks like a problem when viewed from the trust desk alone. The issue is that almost no one views it from the perspective of the institution as a whole. The trust side and the treasury side rarely look at this cash together, so the question of whether that funding could be held on the bank’s own balance sheet never gets asked. The scale is not small. Uninsured national trust banks supervised by the Office of the Comptroller of the Currency reported $5.3 trillion in fiduciary accounts as of December 31, 2025, and that figure covers only one segment of the trust industry.
What the Money-Fund Default Costs
The default is the daily sweep of trust and wealth cash into money market funds. Its cost is the difference between what the bank pays for funding it buys, and what it would pay for funding it already has a relationship with. A bank replacing a Federal Home Loan Bank advance at 3.85 percent, or a brokered CD priced at a market level, is paying a rate set in the wholesale market. A reciprocal deposit is different. It is a relationship deposit, priced between the bank and a customer it already serves, and up to the regulatory cap, it counts as non-brokered relationship funding rather than wholesale borrowing.
| Funding a bank buys | Relationship-based reciprocal deposits |
| FHLB advances near 3.85% (1-year, Q1 2026); brokered CDs at market rates | Priced between the bank and a customer it already serves |
| Priced by a wholesale counterparty | Sourced from existing client relationships |
| Leaves when the deal matures | Can stay as relationship funding for as long as the customer relationship lasts, non-brokered up to the cap |
| Can raise deposit insurance assessments; grouped with less stable funding | Gives the depositor access to expanded FDIC coverage across multiple insured banks, subject to applicable limits and conditions |
Brokered funding carries costs beyond the rate it pays. Under Section 29 of the Federal Deposit Insurance Act, a bank that is not well capitalized may not accept brokered deposits without an FDIC waiver. Under the FDIC’s assessment rules, reliance on brokered deposits can add a brokered deposit adjustment to a bank’s deposit insurance assessment, and interagency liquidity guidance and the FDIC’s own study of core and brokered deposits both treat them as less stable than relationship funding. Those costs are one reason brokered balances are already receding. Brokered deposits at community banks fell to $108.3 billion in the second quarter of 2026, down 10 percent from a year earlier. Reciprocal deposits, treated as non-brokered up to the regulatory cap, sit on the other side of that line.
How Reciprocal Deposits Work for a Bank Internal Trust
The concept is straightforward. Fiduciary client cash is deposited at the bank; the bank, as agent institution, places amounts above the insurance limit through the network; matching reciprocal deposits come back; the client gains expanded coverage. Deposits are insured by the FDIC at each receiving bank, not by the network operator.
Any placement decision must serve the client’s interest and the account’s governing documents first; the funding benefit to the bank is real. Reciprocal deposits are interest-bearing and, depending on the rate environment, can price competitively with money market funds, so the choice need not be a tradeoff between safety and return. A fiduciary holds them for insured principal, subject to applicable coverage conditions, and the institution, not the network, makes the classification determination.
What Section 902 Changes
Only now does the legislation matter, because it changes the size of the opportunity rather than its shape. On July 11, 2026, the 21st Century ROAD to Housing Act became Public Law 119-101. Section 902, in the law’s deposit insurance title, rewrites the cap on non-brokered reciprocal deposits.
The old rule was a flat cap: well-capitalized, well-rated banks could treat reciprocal deposits as non-brokered up to the lesser of $5 billion or 20 percent of total liabilities. Section 902 replaces that single line with a tiered schedule set against the enacted law text: 50 percent of the first $1 billion of a bank’s liabilities, 40 percent of the portion between $1 billion and $10 billion, and 30 percent of the portion between $10 billion and $96.33 billion. It also widens eligibility, extending non-brokered treatment to well-capitalized institutions with a CAMELS composite rating of 1, 2, or 3, rather than only CAMELS 1 and 2 institutions.
| Total liabilities | Old flat cap | New statutory capacity |
| $1 billion | ~$200 million | ~$500 million |
| $10 billion | ~$2.0 billion | ~$4.1 billion |
| $50 billion | ~$5.0 billion | ~$16.1 billion |
| $96.33 billion+ | ~$5.0 billion | ~$30.0 billion max |
Illustrative, based on the statutory formula. Old cap reflects the lesser of $5 billion or 20% of total liabilities. Actual capacity depends on agent-institution eligibility and other requirements.
The one number that matters for most banks is the first tier. A bank with $1 billion in liabilities could treat about $200 million of reciprocal deposits as non-brokered under the old 20 percent cap. Under the new 50 percent first tier, that room rises to about $500 million. The capacity a mid-sized bank has to hold relationship funding without brokered classification roughly doubles at the level where it is most likely to bind.
What Applies Today, and What Is Still Catching Up
The statutory exception is effective now. Section 902 amended the Federal Deposit Insurance Act on enactment and does not carry a delayed effective date. 12 CFR 337.6 now carries the tiered cap and the CAMELS 1, 2, or 3 language, published and effective September 1, 2026. What is still catching up is the Call Report instructions only. Supplemental instructions will be published for September 30, 2026 reporting, with full conformance by December 31, 2026.
One practical caution: a lower reported brokered figure does not automatically lower a bank’s deposit insurance assessment, so model the full economics rather than assume them. In the interim final rule, the FDIC estimates roughly $45.8 million in reduced aggregate assessment revenue annually, spread across an estimated 33 institutions, and no change for well-capitalized CAMELS 1 or 2 small banks that already deduct brokered reciprocal deposits for assessment purposes.
Prepare Now, Use the Capacity Later
The highest-value work does not depend on the rulemaking at all. A bank can start now.
| Step | The question to answer |
| Quantify trust and wealth cash | How much client cash leaves the organization each day through money funds or other external vehicles? |
| Identify eligible relationships | Which balances could be placed through a reciprocal deposit structure? |
| Calculate the new capacity | Model current reciprocal capacity alongside potential capacity under Section 902 (reciprocal capacity calculator). |
| Evaluate the funding economics | Compare reciprocal deposits against FHLB advances, brokered CDs, and other funding sources. |
| Align treasury and fiduciary teams | Evaluate the opportunity across the bank, trust, and wealth businesses together, not in isolation. |
That inventory is available today, and it is the work that separates the banks that move first from the banks that start late.
FAQs
What are reciprocal deposits?
Reciprocal deposits are deposits a bank places through a network and receives back in a matching amount from other network banks. The arrangement gives the depositor access to expanded deposit insurance coverage across participating banks while the bank retains the funding as a relationship-based deposit.
How does Section 902 of HR 6644 change reciprocal deposit limits?
Section 902 of Public Law 119-101 replaces the flat cap of the lesser of $5 billion or 20 percent of liabilities with a tiered framework: 50 percent of the first $1 billion of liabilities, 40 percent of the portion between $1 billion and $10 billion, and 30 percent of the portion between $10 billion and $96.33 billion. It also extends eligibility to well-capitalized banks with a CAMELS composite rating of 1, 2, or 3. The change is effective, and the FDIC’s interim final rule conforms 12 CFR 337.6; Call Report instructions conform through supplemental instructions for September 30, 2026 reporting, with final conformance expected by December 31, 2026.
Are trust and wealth deposits swept into money funds available to fund the bank?
By default, they are not. Fiduciary and wealth cash is commonly swept into money market funds, which sit off the bank’s balance sheet. Placing that cash through a reciprocal deposit network is one way an institution can hold comparable relationship funding on the balance sheet while giving the customer access to expanded deposit insurance coverage, subject to program terms and each institution’s own classification determination.
Are the new Section 902 tiers in effect right now?
Yes, as a matter of statute. Section 902 was effective on enactment, and the FDIC’s August 27, 2026 interim final rule conforms 12 CFR 337.6 to the new tiers, effective on publication in the Federal Register on September 1, 2026, with comments open through October 1, 2026. The FFIEC’s Call Report instructions have not yet conformed, so during the transition banks should document the treatment and coordinate with their own Call Report advisers.
The Path Forward
The cap was never the only thing holding this funding off the balance sheet. Attention was. For years the reciprocal limit and the money-fund default were both easy reasons not to look at trust and wealth cash as a funding source, and the two reinforced each other. Section 902 eases one of them. It does not remove the other.
The banks that benefit first will be the ones that already know their own numbers, the fiduciary and wealth balances that exist, which of those are candidates, and what capacity looks like under the tiers. Institutions that map this out now will spend the transition acting. The rest will spend it counting.
This article is for informational purposes only and is not legal, accounting, tax, or regulatory advice.