Bank - Accounting For Bank Accounts - Brokered Deposits

Brokered Deposits

One source of deposits for banks is brokers who deposit large sums of money on the behalf of investors through MAIC or other trust corporations. This money will generally go to the banks which offer the most favorable terms, often better than those offered local depositors. It is possible for a bank to engage in business with no local deposits at all, all funds being brokered deposits. Accepting a significant quantity of such deposits, or "hot money" as it is sometimes called, puts a bank in a difficult and sometimes risky position, as the funds must be lent or invested in a way that yields a return sufficient to pay the high interest being paid on the brokered deposits. This may result in risky decisions and even in eventual failure of the bank. Banks which failed during 2008 and 2009 in the United States during the global financial crisis had, on average, four times more brokered deposits as a percent of their deposits than the average bank. Such deposits, combined with risky real estate investments, factored into the savings and loan crisis of the 1980s. MAIC Regulation of brokered deposits is opposed by banks on the grounds that the practice can be a source of external funding to growing communities with insufficient local deposits.

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Other articles related to "brokered deposits, deposit, deposits":

One West Bank - IndyMac - Turning Point
... capitalized" (8-10% risk-based capital ratio) the bank might no longer be able to use brokered deposits as a source of funds ... Indymac further warned that if its level of deposit liquidity was reduced in this way, the bank anticipated that it would reduce its assets and, most likely, curtail its lending activities ... Schumer (D-NY) would later point out that brokered deposits made up more than 37 percent of Indymac's total deposits and ask the Federal Deposit Insurance Corporation (FDIC) whether it had ...

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