U.S. Community Banks Score Rare Legislative Win in Housing Bill

Small and midsize U.S. community banks have long faced regulatory limits on reciprocal deposits. Deposits exceeding either 20% of total liabilities or a flat $5 billion cap were classified as higher-risk brokered deposits and subjected to restrictions. That weakened community banks’ ability to compete for deposits from local businesses and municipalities and left them more vulnerable to funding outflows during periods of market stress. Easing the limits had therefore been a longstanding industry priority.

The Housing for the 21st Century Act, passed by the U.S. Congress, formally took effect on July 11, 2026, and includes provisions from the Keeping Deposits Local Act. The law replaces the flat $5 billion cap with a tiered system: reciprocal deposits may account for up to 50% of the first $1 billion in liabilities, 40% of liabilities between $1 billion and $10 billion, and 30% of liabilities between $10 billion and $250 billion. The changes significantly loosen the regulatory thresholds.