Regulation Around Brokered Deposits
July 26, 2022 | Wholesale Funding Update
I don’t know who exactly reads these updates, but I find it interesting that the FDIC updated their Q&A on brokered deposits immediately after our latest update on brokered deposits . All I’m saying is that the timing is interesting. Joking aside, the FDIC announcement provides a good opportunity to discuss the regulation around these deposits.
There are currently two restrictions on brokered deposits: 1) only well-capitalized institutions can freely accept brokered deposits, and 2) brokered deposits can increase an institution’s assessment fees. 99% of banks are well capitalized, meaning point 1 is not a binding restriction [see footnote 10 of 2]. Regarding point 2, the assessment fee adjustment mainly affects large, complex institutions .
In essence, healthy institutions are free to use as many brokered deposits as they would like. If a bank starts heavily relying on brokered deposits, however, the FDIC may start asking more questions than usual. At the end of the day, both regulators and institutions are focused on the stability of the sector and the health of their communities.
It has been fascinating to see how the perception of brokered deposits has changed over the past decade. Today, banks regularly utilize them to supplement their balance sheets, and regulators understand their value. The FDIC states on their website, “for many banks, brokered deposits are an important source of funds, and the marketplace for brokered deposits has evolved in response to technological developments and new business relationships” .
 The FDIC update (see here) reminds broker dealers that if they are using a deposit broker to manage their cash sweep programs, then those deposits should be classified as brokered.