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Core vs Brokered Deposits
May 31, 2022 | Wholesale Funding Update
I have a hunch: the difference between core and brokered deposits is shrinking as financial technology improves.
The FDIC introduced the concept of brokered deposits in 1989 to distinguish them from core deposits. The thought was that brokered deposits, which are deposits placed by a third party, have little loyalty to the underlying bank and are more likely to chase yields . Core deposits, where the bank has a direct relationship with the depositor, should be more stable and predictable. However, the relationship between depositor and bank has fundamentally changed over the years. 65% of the US population now banks on their phone, and 80% believe they can manage their money without ever going into a branch. And with the rise of mobile banking and fintech infrastructure, new bank accounts can be opened in minutes from the comfort of your own home. Money can be moved quickly, and core deposits can chase yields easily .
We don’t have great data on how the rate sensitivity of core deposits has changed as financial technology has evolved, simply because we haven’t had an aggressive rate hiking cycle in the past ten years. That is until now. The next few quarters should tell us if the behavior of core deposits has changed.
 Turns out this isn’t the case (see here), but we’ll dig into the stability of brokered deposits another week.
 To prove my point, it took me just 37 seconds to log into my bank account on my phone using Face ID and schedule a transfer to another account.