2366 Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules 

1See Public Law 101–73, August 9, 1989, 103 

Stat. 183. 

2See Public Law 102–242, December 19, 1991, 

105 Stat. 2236. 

3The statute was amended 1994 as part of the 

Riegle Community Development and Regulatory 

Improvement Act of 1994. The changes were 

generally technical to ensure that the interest rate 

restrictions under Section 29(g)(3) were consistent 

with the PCA framework, among other things. See 

Public Law 103–325, September 23, 1994, 108 Stat. 

2160. 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 337 

RIN 3064–AE94 

Unsafe and Unsound Banking 

Practices: Brokered Deposits and 

Interest Rate Restrictions 

AGENCY: Federal Deposit Insurance 

Corporation. 

ACTION: Advance notice of proposed 

rulemaking and request for comment. 

SUMMARY: The Federal Deposit 

Insurance Corporation (FDIC) is 

undertaking a comprehensive review of 

the regulatory approach to brokered 

deposits and the interest rate caps 

applicable to banks that are less than 

well capitalized. Since the statutory 

brokered deposit restrictions were put 

in place in 1989, and amended in 1991, 

the financial services industry has seen 

significant changes in technology, 

business models, and products. In 

addition, changes to the economic 

environment have raised a number of 

issues relating to the interest rate 

restrictions. A key part of the FDIC’s 

review is to seek public comment 

through this Advance Notice of 

Proposed Rulemaking (ANPR) on the 

impact of these changes. The FDIC will 

carefully consider comments received in 

response to this ANPR in determining 

what actions may be warranted. 

DATES: Comments must be received by 

the FDIC no later than May 7, 2019. 

ADDRESSES: You may submit comments 

on the notice of proposed rulemaking 

using any of the following methods: 

• Agency Website: http://

www.fdic.gov/regulations/laws/federal/. 

Follow the instructions for submitting 

comments on the agency website. 

• Email: comments@fdic.gov. Include 

RIN 3064–AE94 on the subject line of 

the message. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments, Federal 

Deposit Insurance Corporation, 550 17th 

Street NW, Washington, DC 20429. 

• Hand Delivery: Comments may be 

hand delivered to the guard station at 

the rear of the 550 17th Street NW 

Building (located on F Street) on 

business days between 7 a.m. and 5 p.m. 

• Public Inspection: All comments 

received, including any personal 

information provided, will be posted 

generally without change to http://

www.fdic.gov/regulations/laws/federal. 

FOR FURTHER INFORMATION CONTACT: 

Legal Division—Thomas Hearn, 

Counsel, (202) 898–6967; thohearn@

fdic.gov; Vivek V. Khare, Counsel, (202) 

898–6847, vkhare@fdic.gov; Division of 

Risk Management Supervision—Thomas 

F. Lyons, Chief, Policy and Program 

Development, (202) 898–6850, tlyons@

fdic.gov; Judy Gross, Senior Policy 

Analyst, (202) 898–7047, jugross@

fdic.gov; Division of Insurance and 

Research—Ashley Mihalik, Chief, 

Banking and Regulatory Policy, (202) 

898–3793, amihalik@fdic.gov. 

SUPPLEMENTARY INFORMATION: 

I. Policy Objectives 

The policy objective of this ANPR is 

to obtain input from the public as the 

FDIC comprehensively reviews its 

brokered deposit and interest rate 

regulations in light of significant 

changes in technology, business models, 

the economic environment, and 

products since the regulations were 

adopted. The FDIC is inviting comment 

on all aspects of the brokered deposit 

and interest rate regulations. 

To facilitate comment, the remainder 

of this ANPR has been structured in the 

following manner: (II) Brokered 

Deposits and Interest Rate Restrictions, 

addressing (A) Current Law and 

Regulations, (B) History and Research, 

(C) Brokered Deposit Issues, (D) Interest 

Rate Issues; (III) Requests for Comment; 

and Appendices with additional 

background and descriptive statistics. 

II. Brokered Deposits and Interest Rate 

Restrictions 

Brokered and high-rate deposits 

became a concern among bank 

regulators and Congress before any 

statutory restrictions were put in place. 

This concern arose because: (1) Such 

deposits could facilitate a bank’s rapid 

growth in risky assets without adequate 

controls; (2) once problems arose, a 

problem bank could use such deposits 

to fund additional risky assets to 

attempt to ‘‘grow out’’ of its problems, 

a strategy that ultimately increased the 

losses to the deposit insurance fund 

when the institution failed; and (3) 

brokered and high-rate deposits were 

sometimes volatile because deposit 

brokers (on behalf of customers), or the 

customers themselves, were often drawn 

to high rates and were prone to leave the 

bank when they found a better rate or 

they became aware of problems at the 

bank. 

Before proceeding further, it should 

be noted that, historically, most 

institutions that use brokered and 

higher-rate deposits have done so in a 

prudent manner and appropriately 

measure, monitor, and control risks 

associated with brokered deposits. 

Moreover, well-capitalized institutions 

are not subject to restrictions on 

accepting brokered deposits or setting 

interest rates. Nonetheless, the FDIC 

also recognizes that institutions 

sometimes are concerned that the use of 

brokered deposits can have other 

regulatory consequences, such as 

implications for deposit insurance 

pricing in certain circumstances, or may 

be viewed negatively by investors or 

other stakeholders. 

A. Current Law and Regulations 

Section 29 of the Federal Deposit 

Insurance Act (FDI Act), titled 

‘‘Brokered Deposits,’’ was originally 

added to the FDI Act by the Financial 

Institutions Reform, Recovery, and 

Enforcement Act of 1989 (FIRREA). The 

law originally restricted troubled 

institutions (not meeting their minimum 

capital requirements at the time) from 

(1) accepting deposits from a deposit 

broker without a waiver and (2) 

soliciting deposits by offering rates of 

interest on deposits that were 

significantly higher than the prevailing 

rates of interest on deposits offered by 

other insured depository institutions (or 

‘‘IDIs’’) having the same type of charter 

in such depository institution’s normal 

market area.1

Two years later, Congress enacted the 

Federal Deposit Insurance Corporation 

Improvement Act of 1991 (FDICIA), 

which added the Prompt Corrective 

Action (PCA) capital regime to the FDI 

Act and also amended the threshold for 

the brokered deposit and interest rate 

restrictions from a troubled institution 

to a bank falling below the ‘‘well 

capitalized’’ PCA level. At the same 

time, the FDIC was authorized to waive 

the brokered deposit restrictions for a 

bank that is adequately capitalized upon 

a finding that the acceptance of such 

deposits does not constitute an unsafe 

or unsound practice with respect to the 

institution.2 FDICIA did not authorize 

the FDIC to waive the brokered deposit 

restrictions for less than adequately 

capitalized institutions. Most recently, 

earlier this year, Section 29 of the FDI 

Act was amended as part of the 

Economic Growth, Regulatory Relief, 

and Consumer Protection Act, to except 

a capped amount of certain reciprocal 

deposits from treatment as brokered 

deposits.3


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4See 12 CFR 337.6. The FDIC issued two 

rulemakings related to the interest rate restrictions 

under this section. A discussion of those 

rulemakings, and the interest rate restrictions, is 

provided in Section (II)(B) of this ANPR. 

5See 12 U.S.C. 1831f. 

6The term ‘‘employee’’ is defined as ‘‘any 

employee (A) who is employed exclusively by the 

insured depository institution; (B) whose 

compensation is primarily in the form of salary; (C) 

who does not share such employee’s compensation 

with a deposit broker; and (D) whose office space 

or place of business is used exclusively for the 

benefit of the insured depository institution which 

employs such individual.’’ 

7See 12 CFR 337.6(a)(5)(J). The exception was 

adopted by the FDIC shortly after FDICIA was 

enacted in 1991, and the FDIC indicated in the 

preamble for the final rule that implemented the 

FDICIA revisions to section 29 that those revisions 

were not intended to apply to deposits placed by 

insured depository institutions assisting 

government departments and agencies in 

administration of MWODI deposit programs. See 57 

FR 23933, 23040 (1992). 

8See H.R. Conf. Rep. No. 101–222, 101st Cong., 

1st Sess. 402 (1989). 

9See ‘‘Problems of the Federal Savings and Loan 

Insurance Corporation: Hearings Before the 

Committee on Banking, Housing, and Urban Affairs 

of the United States Senate,’’ (part II) 101st Cong., 

1st Sess. 230–231 (1989). 

10History of the Eighties—Lessons for the Future, 

p. 119, Federal Deposit Insurance Corporation 

December 1997 https://www.fdic.gov/bank/ 

historical/history/. 

11FDIC, ‘‘Division of Bank Supervision Manual,’’ 

Section L, page 3, November 1, 1973. 

12History of the Eighties—Lessons for the Future, 

p. 119, Federal Deposit Insurance Corporation 

December 1997 https://www.fdic.gov/bank/ 

historical/history/. 

13See id; see also, Belly Up: The Collapse of the 

Penn Square Bank (1985), Chapter 9, Phillip L. 

Zweig. 

14See 49 FR 13003 (April 2, 1984). 

15 FAIC Securities, Inc. v. United States, 768 F.2d 

352 (D.C. Cir. 1985). 

Section 337.6 of the FDIC’s Rules and 

Regulations implements and closely 

tracks the statutory text of Section 29, 

particularly with respect to the 

definition of ‘‘deposit broker’’ and its 

exceptions.4 Section 29 of the FDI Act 

does not directly define a ‘‘brokered 

deposit,’’ rather, it defines a ‘‘deposit 

broker’’ for purposes of the restrictions.5

Thus, the meaning of the term 

‘‘brokered deposit’’ turns upon the 

definition of ‘‘deposit broker.’’ 

Section 29 and the FDIC’s 

implementing regulation define the term 

‘‘deposit broker’’ to include: 

(1) Any person engaged in the 

business of placing deposits, or 

facilitating the placement of deposits, of 

third parties with insured depository 

institutions or the business of placing 

deposits with insured depository 

institutions for the purpose of selling 

interests in those deposits to third 

parties; and 

(2) An agent or trustee who 

establishes a deposit account to 

facilitate a business arrangement with 

an insured depository institution to use 

the proceeds of the account to fund a 

prearranged loan. 

This definition is subject to the 

following nine statutory exceptions: 

(1) An insured depository institution, 

with respect to funds placed with that 

depository institution; 

(2) An employee of an insured 

depository institution, with respect to 

funds placed with the employing 

depository institution; 6

(3) A trust department of an insured 

depository institution, if the trust in 

question has not been established for 

the primary purpose of placing funds 

with insured depository institutions; 

(4) The trustee of a pension or other 

employee benefit plan, with respect to 

funds of the plan; 

(5) A person acting as a plan 

administrator or an investment adviser 

in connection with a pension plan or 

other employee benefit plan provided 

that that person is performing 

managerial functions with respect to the 

plan; 

(6) The trustee of a testamentary 

account; 

(7) The trustee of an irrevocable trust 

(other than one described in paragraph 

(1)(B)), as long as the trust in question 

has not been established for the primary 

purpose of placing funds with insured 

depository institutions; 

(8) A trustee or custodian of a pension 

or profit sharing plan qualified under 

section 401(d) or 430(a) of the Internal 

Revenue Code of 1986; or 

(9) An agent or nominee whose 

primary purpose is not the placement of 

funds with depository institutions. 

As listed above, the statute includes 

nine exceptions to the definition of 

‘‘deposit broker.’’ The FDIC’s 

regulations include the following tenth 

exception: ‘‘An insured depository 

institution acting as an intermediary or 

agent of a U.S. government department 

or agency for a government sponsored 

minority or women-owned depository 

institution program (‘‘MWODI’’).7

In addition to restricting the 

acceptance of brokered deposits by less 

than well-capitalized IDIs, Section 29 of 

the FDI Act also prohibits such IDIs 

from paying rates that significantly 

exceed their normal market area or the 

national rate as established by the FDIC 

by regulation. This provision was 

intended to prohibit ‘‘the solicitation of 

deposits by in-house salaried employees 

through so-called money-desk 

operations.’’ 8 More specifically, the 

provision addressed a concern that 

emerged during various legislative 

hearings that brokered deposit 

restrictions could easily be 

circumvented by in-house solicitation of 

high-rates.9 In implementing this 

legislative restriction, from 1989 to 

2009, the FDIC pegged the national rate 

to comparable Treasury rates in its 

regulation. However, the national rate 

calculation was changed in 2009, 

pursuant to a notice-and-comment 

rulemaking, when yields on Treasuries 

fell dramatically during the crisis, 

compressing the rate caps. The FDIC 

moved to a simple average of rates paid 

by all banks and branches that offer a 

specific product. This national rate data 

is provided to the FDIC by a datagathering company and is published 

weekly on the FDIC’s website. The 

history of the interest rate restrictions 

and its associated issues are discussed 

more fully in Section D. 

B. History and Research 

As described in the FDIC’s 1997 study 

of the banking and thrift crises of the 

1980s and early 1990s, brokered CDs 

became increasingly used as funding 

sources, first by money center banks and 

then by regional and smaller 

institutions.10 Even as early as the 

1970s, the FDIC noted concerns about 

brokered deposits, as stated in the 

FDIC’s Division of Bank Supervision 

Manual—‘‘The use of brokered deposits 

has been responsible for abuses in 

banking and has contributed to some 

bank failures, with consequent losses to 

the larger depositors, other creditors, 

and shareholders.’’ 11

However, the potential abuses 

associated with brokered deposits 

received relatively little attention until 

the failure of Penn Square Bank in 1982. 

This failure resulted in the largest bank 

payout of insured deposits in the history 

of the FDIC up until that time.12

Brokered deposits allowed the bank to 

grow rapidly from $30 million in assets 

in 1977 to $436 million in assets when 

it failed in 1982, with much of the 

growth in high risk loans to small oil 

and gas producers.13 In response to the 

rising use of brokered deposits and data 

suggesting negative consequences, in 

April 1984 the FDIC and the Federal 

Home Loan Bank Board (FHLBB) 

adopted a joint final rule restricting pass 

through deposit insurance for deposits 

obtained through a deposit broker.14

The agencies indicated that data showed 

that institutions used brokered deposits 

to pursue rapid growth in risky real 

estate-related lending without adequate 

controls and to increase risky lending 

after problems arose. In January 1985, 

the Court of Appeals for the District of 

Columbia Circuit ruled that the FDI Act 

did not permit the FDIC to eliminate 

pass-through deposit insurance for 

deposit brokers.15


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16 Descriptive statistics detailing the historical 

holdings of brokered deposits by bank size and PCA 

capital classification status can be found in 

Appendix 1. 

While the case was pending, and after 

the decision, Congressional hearings 

regarding brokered deposits were held 

between 1984 and 1988 and, in 1989, as 

noted earlier, as part of FIRREA. 

Pursuant to these hearings, Congress 

imposed restrictions on brokered 

deposits for institutions that did not 

meet their minimum capital 

requirements and later tied the 

restrictions to the PCA framework in 

1991 through FDICIA. Congress also 

imposed rate restrictions on institutions 

that were less than well capitalized out 

of concern that institutions would be 

able to circumvent brokered deposit 

restrictions by merely advertising or 

otherwise offering very high rates. Since 

enactment of Section 29, the FDIC has 

continued to study the role of brokered 

deposits in the performance of banks, 

their impact on safety and soundness, 

and the loss they impose on the Deposit 

Insurance Fund (DIF) when a bank fails. 

Brokered Deposit Usage and Relevant 

Data 

From the 1960s up until 2000, 

brokered retail CDs and wholesale CDs 

were the main type of brokered deposits 

used in the banking system. Starting in 

the 1980s deposit listing services began 

generating deposits for IDIs by 

advertising CD rates on behalf of 

institutions. Beginning in 1999, brokerdealers first started to offer brokerage 

customers an automatic sweep of their 

customers’ idle funds to IDIs. 

Beginning in 2003, a network was 

established through which banks could 

place customer funds in time deposits at 

other banks and receive time deposits in 

an equal amount of funds in return, 

such deposits being referred to as 

‘‘reciprocal deposits.’’ Similar services 

evolved for money market deposit 

accounts (MMDAs). 

As of September 30, 2018, insured 

depository institutions held $986 billion 

in brokered deposits, which amounted 

to 8.0 percent of the $12.3 trillion in 

industry domestic deposits. These 

brokered deposits were held by 2,221 

insured depository institutions, 

representing 40.6 percent of the 5,477 

total number of insured depository 

institutions. 

Although 2,221 institutions held 

brokered deposits as of September 30, 

2018, a significant portion of these 

deposits are concentrated in a small 

number of institutions. One hundred 

institutions held 89.4 percent, or $881 

billion, of the $986 billion brokered 

deposits in the banking system, with 

five institutions accounting for 39.4 

percent, or $389 billion, of all brokered 

deposits. The remaining 2,121 

institutions using brokered deposits 

account for the remaining $104 billion 

in brokered deposits. 

Consistent with this concentration, 

among the 2,221 institutions holding 

brokered deposits as of September 30, 

2018, the median holding was 4.7 

percent of total domestic deposits, but 6 

institutions held brokered deposits in 

excess of 90 percent of total domestic 

deposits; 25 institutions held brokered 

deposits between 50 percent and 90 

percent of total domestic deposits; and 

79 institutions held brokered deposits 

between 25 percent and 50 percent of 

total domestic deposits. 

BROKERED DEPOSITS HELD BY INSURED DEPOSITORY INSTITUTIONS AS OF SEPTEMBER 30, 2018 16

Asset size group Total number 

of banks 

Number of 

banks with 

brokered 

deposits 

Total 

brokered 

deposits 

(billions) 

Share of 

total 

brokered 

deposits 

(%) 

Total 

domestic 

deposits 

Share of 

total 

domestic 

deposits 

(%) 

Under $1 Billion ....................................... 4,704 1,656 $31.92 3.2 $988.05 8.0 

$1–10 Billion ............................................ 635 439 90.16 9.1 1,349.56 11.0 

$10–50 Billion .......................................... 97 89 171.87 17.4 1,605.40 13.0 

Over $50 Billion ....................................... 41 37 691.78 70.2 8,378.84 68.0 

All Banks ........................................... 5,477 2,221 985.73 ........................ 12,321.84 ........................

The largest concentrations of brokered 

deposits can be characterized as 3 types 

of deposits: (1) Master Certificates of 

Deposits; (2) sweep deposits that are 

viewed as brokered; and (3) reciprocal 

deposits. Listing service deposits are 

also discussed below, but typically, are 

not reported as brokered. 

Master Certificate of Deposits 

Information about brokered deposits 

that the FDIC collects from banks 

through the Call Report does not reflect 

certain elements of the structure of the 

brokered deposit market. However, 

industry participants have informed the 

FDIC that a sizable portion of reported 

brokered deposits are wholesale Master 

Certificate of Deposits. These 

instruments are held on the books of the 

issuing bank in the name of a subsidiary 

of Depository Trust Corporation (DTC) 

as custodian for deposit brokers who are 

often broker dealers. These broker 

dealers, in turn, issue retail CDs, 

typically in denominations of $1,000, 

under the Master Certificate of Deposit 

to their retail clients. 

The retail customers’ ownership 

interests in the brokered retail CDs are 

reflected on the books of the deposit 

broker that issued them. These Master 

Certificates of Deposits are reported by 

banks on Call Report Schedule RC–E, 

Memoranda Item 1.c as deposits of 

$250,000 or less even though issued in 

the name of DTC for more than $250,000 

to reflect the substance of the retail CDs 

issued under them. The FDIC, however, 

has no Call Report information about 

what portion of reported brokered 

deposits of $250,000 or less are Master 

Certificates of Deposits as described 

above. In the event of a failure, the 

deposit broker maintains records of the 

retail CDs held by its customers, and 

these records would be submitted to the 

FDIC in order to make payments on 

deposit insurance to the retail CD 

holders. 

Sweep Deposits 

Third parties (including investment 

companies acting on behalf their clients) 

that sweep client funds into deposit 

accounts at IDIs are deposit brokers. As 

a result, the sweep deposits placed by 

these third parties are brokered deposits 

unless the third party meets one of the 

exceptions to the definition of ‘‘deposit 

broker’’. In 2005, FDIC staff issued an 

advisory opinion that took the view that 

a brokerage firm placing idle client 

funds into deposit accounts at its 

affiliate IDI, under certain 

circumstances, meets the ‘‘primary 


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17See FDIC Advisory Opinion No. 05–02 (2005). 

18Federal Deposit Insurance Corp., Crisis and 

Response: An FDIC History, 2008–2013 (2017), 

available at: https://www.fdic.gov/bank/historical/ 

crisis/crisis-complete.pdf. 

19 In addition to brokered deposits, wholesale 

funding includes federal funds purchased, 

securities sold under repurchase agreements, and 

other borrowed money. 

purpose’’ exception.17 Thus, the 

deposits placed on behalf of their clients 

would not be brokered deposits. 

As of September 30, 2018, 28 insured 

depository institutions have indicated to 

the FDIC that they receive funds swept 

from an affiliated broker dealer under 

conditions that FDIC staff have 

indicated would support the affiliate 

being viewed as meeting the ‘‘primary 

purpose’’ exception to the ‘‘deposit 

broker’’ definition. Each of these 

insured depository institutions provides 

monthly reports to the FDIC of the 

monthly average of the swept funds as 

of month end. As of September 30, 

2018, these 28 insured depository 

institutions reported $724 billion as the 

average amount of funds swept from the 

institutions’ affiliated broker dealers for 

September 2018. 

Thus, as of September 30, 2018, the 

reported brokered deposits of $986 

billion, which includes brokered CDs 

and broker dealer sweeps to unaffiliated 

insured depository institutions, when 

combined with the average monthly 

balance of funds that broker dealers 

sweep to affiliated institutions for 

September of $724 billion result in a 

combined amount of $1.710 trillion, 

which represents 14 percent of the $12.3 

trillion in industry domestic deposits 

for that date. 

Reciprocal Deposits 

Reciprocal deposit arrangements are 

based upon a network of IDIs that place 

funds at other participating banks in 

order for depositors to receive insurance 

coverage for the entire amount of their 

deposits. Because reciprocal 

arrangements can be complex, and 

involve numerous banks, they are often 

managed by a third-party sponsor. As a 

result, all deposits placed through this 

arrangement have historically been 

viewed as brokered deposits. 

On May 24, 2018, the Economic 

Growth, Regulatory Reform, and 

Consumer Protection Act took effect, 

allowing certain banks to except a 

limited amount of reciprocal deposits 

(as defined by the Act) from brokered 

deposits. Under the reciprocal deposit 

exception, well-capitalized and wellrated institutions are not required to 

treat such reciprocal deposits as 

brokered deposits up to the lesser of 20 

percent of its total liabilities, or $5 

billion. Institutions that are not both 

well capitalized and well rated may also 

exclude reciprocal deposits from their 

brokered deposits under certain 

circumstances. 

The immediate result of this Act has 

significantly reduced the percentage of 

reciprocal deposits that are classified as 

brokered deposits. As of March 30, 

2018, the last reporting quarter before 

the Act took effect, reciprocal deposits 

of $48.5 billion were reported. As of 

June 30, 2018, the first quarter end after 

the Act took effect, brokered reciprocal 

deposits had fallen to $17.1 billion. As 

of September 30, 2018, brokered 

reciprocal deposits had fallen to $13.7 

billion. For banks with assets less than 

$1 billion, their percentage of reciprocal 

deposits as a percent of brokered 

deposits declined from 33.7 percent on 

March 31, 2018, to 15.4 percent on June 

30, 2018 and, 11.5 percent on 

September 30, 2018. 

Listing Service Deposits 

Deposits whose placement at insured 

depository institutions are facilitated, in 

a passive manner, by deposit listing 

services have not been reported as 

brokered deposits. However, since 2011, 

such deposits have been reported on 

banks’ Call Reports. As of September 30, 

2018, insured depository institutions 

reported holding $69.6 billion in listing 

service deposits that are not reported as 

brokered deposits, which amounted to 

0.6 percent of industry domestic 

deposits. One quarter of insured 

depository institutions held nonbrokered listing service deposits as of 

September 30, 2018. 

As of September 30, 2018, 22 

institutions were not well capitalized 

for PCA purposes. Of these institutions, 

13 institutions held non-brokered listing 

service deposits, for which the ratio of 

non-brokered listing service deposits to 

domestic deposits was 3.6 percent, 

while the ratio for the 1,356 well-rated 

institutions holding such deposits was 

2.9 percent. Among insured depository 

institutions with non-brokered listing 

service deposits, the share of nonbrokered listing service deposits to 

domestic deposits has declined from a 

median of 4.6 percent on September 30, 

2011 to 2.9 percent as of September 30, 

2018. 

FDIC Studies That Discuss Brokered 

Deposits 

In the wake of the recent financial 

crisis, the Dodd-Frank Act directed the 

FDIC to conduct a study of core and 

brokered deposits, which the FDIC 

completed in July 2011. Recently the 

FDIC updated its analysis with data 

through the end of 2017. The results of 

that analysis confirm the previous 

findings of the 2011 study and can be 

found in Appendix 2. 

The research provided in the study 

shows that higher brokered deposit use 

is associated with higher probability of 

bank failure and higher insurance fund 

loss rates. Banks with higher levels of 

brokered deposits are also, in general, 

more costly to the DIF when they fail. 

The study also found that, on average, 

brokered deposits are correlated with 

higher levels of asset growth, higher 

levels of nonperforming loans, and a 

lower proportion of core deposit 

funding. FDIC’s study also describes the 

three characteristics of brokered 

deposits that have posed risk to the DIF: 

1. Rapid growth—the extent to which 

deposits can be gathered quickly and 

used imprudently to expand risky assets 

or investments. 

2. Volatility—the extent to which 

deposits might flee if the institution 

becomes troubled or the customer finds 

a more appealing interest rate or terms 

elsewhere. Volatility tends to be also be 

mitigated somewhat by deposit 

insurance, as insured depositors have 

less incentive to flee a problem 

situation. 

3. Franchise Value—the extent to 

which deposits will be attractive to the 

purchasers of failed banks, and therefore 

not contribute to losses to the DIF. 

In December 2017, the FDIC 

published Crisis and Response: An FDIC 

History, 2008–2013.18 The history 

shows that failures and downgrades 

were highly correlated with reliance on 

brokered deposits and other wholesale 

funding sources.19 Generally speaking, 

failures were more concentrated among 

banks that made relatively greater use of 

brokered deposits and other wholesale 

funding sources. 

The history noted that, although the 

use of brokered deposits and other 

wholesale funding sources within a 

sound liquidity management program is 

not in itself a risky practice, significant 

reliance on wholesale funds may reflect 

a decision that an institution has made 

to grow its business more aggressively. 

On the liability side, the history 

indicated that if the institution comes 

under stress, wholesale counterparties 

may be more apt to withdraw funding 

or demand additional collateral. 

In addition to these publications, the 

following reports prepared by the 

Inspectors General of the federal 

banking agencies have detailed how 

brokered deposits were sometimes used 

by failed banks in the most recent crisis. 

These reports include the following: 

• Safety and Soundness: Analysis of 

Bank Failures Reviewed by the 


amozie on DSK3GDR082PROD with PROPOSALS3
2370 Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules 

20The estimated loss data is as of November 26, 

2018, available at: https://www5.fdic.gov/hsob/ 

hsobRpt.asp. 

21Of the $5.4 billion in brokered deposits that 

IndyMac reported on it Call Report for March 31, 

2008, 98.42 percent were in brokered certificates of 

deposits documented as master certificates of 

deposits issued in the name of CEDE & Co, a 

subsidiary of DTC, as sub-custodian for deposit 

brokers. 

22See Safety and Soundness: Material Loss 

Review of IndyMac Bank, FSB, United States 

Department of Treasury, Office of Inspector 

General, February 26, 2009 https://

www.treasury.gov/about/organizational-structure/ 

ig/Documents/oig09032.pdf. 

23See Safety and Soundness: Material Loss 

Review of ANB Financial National Association, 

United States Department of Treasury, Office of 

Inspector General, November 28, 2008 https://

www.treasury.gov/about/organizational-structure/ 

ig/Documents/oig09013.pdf 

24For banks that are well capitalized and well 

rated, reciprocal deposits that are treated as 

brokered deposits are deducted from brokered 

deposits for purposes of the brokered deposit ratio. 

See 12 CFR 327.16(a). 

25See 12 CFR 327.16(e)(3). 

26FDIC Staff Advisory Opinions are available at: 

https://www.fdic.gov/regulations/laws/rules/ 

index.html. 

27See Identifying, Accepting, and Reporting 

Brokered Deposits: Frequently Asked Questions 

(rev. Jul 14, 2016). An initial set of Frequently 

Asked Questions was issued in January 2015, but 

without notice and comment at that time. 

Department of the Treasury Office of 

Inspector General, OIG–16–052, 

August 15, 2016 

• Summary Analysis of Failed Bank 

Reviews, Board of Governors of the 

Federal Reserve System, Office of 

Inspector General, September 2011 

• Follow Up Audit of FDIC Supervision 

Program Enhancements, FDIC Office 

of Inspector General, Report No. 

MLR–11–010, December 2011 

In these reports, brokered deposits 

were most commonly cited as a 

contributor to problems at troubled and 

failed institutions, largely by allowing 

institutions with concentrations in 

poorly underwritten and administered 

commercial real estate loans, including 

acquisition, construction, and 

development loans (ADC) or other risky 

assets, to grow rapidly. Institutions that 

failed were typically subject to the 

brokered deposit restrictions and 

interest rate restrictions before failure 

because their capital levels deteriorated 

to below well capitalized. However, for 

those institutions that failed and still 

had brokered deposits at the time of 

failure, either the acquirer did not want 

the brokered deposits or did not pay a 

premium for them, either of which 

increases the cost to the DIF. 

Brokered Deposits in Bank Failures 

2007–2017 

The FDIC and the DIF were 

significantly affected by the previous 

financial crisis between 2007 and 2017. 

During this time, excluding Washington 

Mutual, 530 banks failed and were 

placed in FDIC receivership and, as of 

December 31, 2017, the estimated loss to 

the DIF for these institutions is $74.4 

billion. 

Based upon regulatory reporting data, 

47 institutions that failed relied heavily 

on brokered deposits and caused losses 

to the DIF that triggered material loss 

reviews. These 47 institutions held total 

assets representing 13 percent of the 

$703.9 billion in aggregate total assets of 

the 530 failed institutions, but 

accounted for $28.4 billion in estimated 

losses to the DIF, representing 38 

percent of the $74.4 billion in all DIF 

estimated losses for that same period.20

For example, the largest of these 47 

institutions was IndyMac Bank, F.S.B., 

which failed on July 11, 2008. As of 

December 31, 2017, the estimated loss to 

the DIF for IndyMac, is $12.3 billion, 

representing 40 percent of IndyMac’s 

$30.7 billion in total assets at failure 

and approximately 16.5 percent of the 

total $74.4 billion in estimated losses to 

the DIF from bank failures between 2007 

and 2017. In its last Thrift Financial 

Report (‘‘TFR’’) filed prior to failure, as 

of March 30, 2008, IndyMac reported 

brokered deposits of $5.5 billion, which 

represented 28.98 percent of the 

institution’s $18.9 billion in total 

deposits.21 In its TFR filed for the 4th 

quarter of 2005, approximately 12 

quarters before the institution failed, 

IndyMac reported $1.4 billion in 

brokered deposits, representing 18.4 

percent of its then $7.4 billion in total 

deposits. This data suggests that 

IndyMac accelerated its use of brokered 

deposits as its problems mounted.22

Another, more pronounced, example 

is ANB Financial National Association 

(ANB Financial), which failed on May 9, 

2008. As of November 26, 2018, the 

estimated loss to the DIF for ANB 

Financial is $1.029 billion, representing 

54 percent of the institution’s $1.89 

billion in total assets at failure. In its 

Call Report filed prior to failure, i.e., as 

of March 30, 2008, ANB Financial 

reported brokered deposits of $1.578 

billion, which represented 86.96 percent 

of the institution’s $1.815 billion in total 

deposits. In the Call Report filed for the 

4th quarter of 2005, approximately 12 

quarters before the institution failed, 

ANB Financial reported $256.8 million 

in brokered deposits, representing 50.46 

percent of its then $508 million in total 

deposits.23 The brokered deposits 

remaining at failure for both IndyMac 

and ANB’s brokered deposits were 

master CDs issued in the name of DTC 

as sub-custodian for deposit brokers, 

which were the primary source for the 

remaining brokered deposits at failure 

for most of the other 34 institutions 

referenced above. 

Brokered Deposits and Assessments 

The FDIC has amended its assessment 

regulations to address the risks to the 

DIF associated with brokered deposits. 

For small banks (generally, IDIs with 

less than $10 billion in total assets), 

brokered deposits can increase a bank’s 

assessment rate if the bank’s ratio of 

brokered deposits to total assets exceeds 

10 percent.24 The brokered deposit ratio 

is one of several financial measures 

used to determine assessment rates for 

small banks. For new small banks in 

Risk Categories II, III and IV, and large 

and highly complex institutions that are 

not well capitalized, or that are not 

CAMELS composite 1- or 2-rated, 

brokered deposits can increase a bank’s 

assessment rate through the brokered 

deposit adjustment.25 Under the 

adjustment, a bank’s assessment will 

increase if its ratio of brokered deposits 

to domestic deposits is greater than 10 

percent. 

C. Brokered Deposit Issues 

As noted above, Section 29 does not 

explicitly define the term ‘‘brokered 

deposit.’’ Restrictions on brokered 

deposits are tied to the statutory 

definition of ‘‘deposit broker’’ that 

Congress adopted in 1989 as part of the 

legislative response to the bank and 

thrift crisis. That definition includes 

dealers in the brokered CD market, and 

broker dealers that sweep customer 

funds to unaffiliated insured depository 

institutions which, when combined, 

represent over 90% of reported brokered 

deposits according to industry sources 

as discussed more fully above. 

Therefore, based on those same sources, 

the interpretive issues tend to relate to 

a small segment of reported brokered 

deposits. 

Determining what constitutes a 

deposit broker, and thus a brokered 

deposit, is very fact-specific and 

requires a close review of the 

arrangement, the documents governing 

the arrangement, and the third party’s 

remuneration, among other things. 

Given the wide, and evolving, variety of 

third-party arrangements, FDIC staff 

review them on a case-by-case basis, 

applying the statutory provisions to the 

facts and circumstances presented. Staff 

interpretations are typically 

documented in Advisory Opinions.26 In 

addition, on June 30, 2016, the FDIC 

issued, after soliciting comment, an 

updated set of Frequently Asked 

Questions,27 that compiles information 


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28The second phrase in FDI Act section 

29(g)(1)(A) provides that a ‘‘deposit broker’’ 

includes, ‘‘any person engaged in . . . the business 

of placing deposits with insured depository 

institutions for the purpose of selling interests in 

those deposits to third parties.’’ This clause appears 

to reference the practice involving master 

certificates of deposits issued to deposit brokers 

who, in turn, issue retail CDs in denominations of 

$1,000 to their retail customers. Industry 

participants have previously informed the FDIC that 

the practice of issuing master certificates of deposit 

from which smaller retail CDs are issued dates back 

to the early 1980s. 12 U.S.C. 1831f(g)(1)(A). 

In a 1983 advanced notice of proposed 

rulemaking that preceded the 1984 final rule, the 

FDIC and FHLBB described the underlying market 

practice: 

CD Participations. Some brokers engage in the 

practice of ‘‘participating certificates of deposit to 

their customers. Under this arrangement a brokerdealer purchases a certificate of deposit issued by 

an insured institution and sells interests in it to 

customers. Upon sale of the participations in the 

deposit to its customer, the broker so informs the 

issuing institution and requests that the deposits be 

registered in its own name as nominee for others. 

The broker’s records, in turn, reflect the ownership 

interest of each customer in the deposit. A CD 

participation program results in a ‘‘flow-through’’ of 

insurance coverage to each owner of the deposit. 

The ownership interest of each participant in the 

deposit is added to the individually owned deposits 

held by the participant at the same institution and 

the total is insured to a maximum of $100,000, 

provided the proper recordkeeping requirements 

are maintained. 

48 FR 50339 (November 1, 1983). 

29 12 U.S.C. 1831f(g)(1); 12 CFR 337.6(a)(5(i). As 

stated above, section 29(g)(1)(B) provides that 

‘‘deposit broker’’ includes: ‘‘An agent or trustee 

who establishes a deposit account to facilitate a 

business arrangement with an insured depository 

institution to use the proceeds of the account to 

fund a prearranged loan.’’ The preamble to the 1984 

FDIC/FHLBB final rule, provided background as to 

what this language was intended to address: 

Certificates of deposit held in trust for 

bondholders under ‘‘loans-to-lenders’’ or industrial 

development bond (‘‘IDB’’) programs are covered by 

the final rule. These programs entail a transaction 

where the proceeds of an IDB issuance are placed 

with an insured institution, in exchange for a 

certificate of deposit, to fund a designated project. 

Because of the trust arrangement involved, under 

the Agencies’ current insurance coverage rules each 

bondholder owns an insured interest in the deposit 

up to $100,000 and the deposit, therefore, may be 

fully insured by either the FDIC or the FSLIC. 

49 FR 13003, 13010 (April 2, 1984). 

30 12 U.S.C. 1831f(g)(1)(A). 31 12 U.S.C. 1831f(g)(2). 

about the law, regulation, and FDIC staff 

interpretations in a single online 

location. 

The FDIC continues to receive 

inquiries, and in recent years, FDIC staff 

has been asked about the application of 

the ‘‘deposit broker’’ definition, and its 

statutory and regulatory exceptions, to 

new types of third parties that are 

involved in placing or facilitating the 

placement of third-party funds at IDIs. 

Many of these questions relate to 

advancements in technology, and new 

business practices and products that 

IDIs might utilize to offer services to 

customers and also to gather deposits. 

The inherent challenge often is to 

distinguish between third party service 

providers to the IDI and third parties 

that are engaged in the business of 

placing or facilitating the placement of 

deposits, albeit using updated 

technology. 

Generally, in determining whether 

deposits placed through these new 

deposit placement arrangements are 

brokered, staff has looked to precedents 

involving the definition of ‘‘deposit 

broker’’ and has attempted to 

consistently apply that analysis to these 

new products. If a third party is placing 

funds on behalf of itself, the funds are 

not brokered. If a third party is in the 

business of either (1) placing funds, or 

(2) facilitating the placement of funds— 

of another third-party (such as its 

customers)—then it meets the definition 

of ‘‘deposit broker’’ and the deposits are 

brokered, unless an exception applies. 

Below is a discussion of a few of the 

most typical issues for which questions 

have arisen, organized in the context of 

the definitions and exceptions. 

The FDI Act defines ‘‘deposit broker’’ 

to mean: 

(A) any person engaged in the 

business of placing deposits, or 

facilitating the placement of deposits, of 

third parties with insured depository 

institutions or the business of placing 

deposits with insured depository 

institutions for the purpose of selling 

interests in those deposits to third 

parties; 28 and 

(B) an agent or trustee who establishes 

a deposit account to facilitate a business 

arrangement with an insured depository 

institution to use the proceeds of the 

account to fund a prearranged loan.’’ 29

1. Engaged in the Business of Placing 

Deposits or Facilitating the Placement of 

Deposits 

The first phrase of FDI Act section 

29(g)(1)(A), defines a deposit broker as, 

‘‘any person engaged in the business of 

placing deposits, or facilitating the 

placement of deposits, of third parties 

with insured depository institutions.’’ 30

In evaluating whether certain third 

parties comport with the statutory 

definition of ‘‘deposit broker,’’ and 

being ‘‘engaged in the business of 

placing deposits, or facilitating the 

placement of deposits,’’ staff at the FDIC 

reviews every arrangement on a case-bycase basis considering the following 

factors: 

Æ Whether the third party receives 

fees from the insured depository 

institution that are based (in whole or in 

part) on the amount of deposits or the 

number of deposit accounts. 

Æ Whether the fees can be justified as 

compensation for administrative 

services (such as recordkeeping) or 

other work performed by the third party 

for the insured depository institution (as 

opposed to compensation for bringing 

deposits to the insured depository 

institution). 

Æ Whether the third party’s deposit 

placement activities, if any, is directed 

at the general public as opposed to 

being directed at members (or ‘‘affinity 

groups’’) or clients. 

Æ Whether there is a formal or 

contractual agreement between the 

insured depository institution and the 

third party (e.g., referring or marketing 

entity) to place or steer deposits to 

certain insured depository institutions. 

Æ Whether the third party is given 

access to the depositor’s account, or will 

continue to be involved in the 

relationship between the depositor and 

the insured depository institution. 

2. Exclusions From the ‘‘Deposit 

Broker’’ Definition 

The statutory ‘‘deposit broker’’ 

definition excludes the following: 

(A) An insured depository institution, 

with respect to funds placed with that 

depository institution; 

(B) An employee of an insured 

depository institution, with respect to 

funds placed with the employing 

depository institution; 

(C) A trust department of an insured 

depository institution, if the trust in 

question has not been established for 

the primary purpose of placing funds 

with insured depository institutions; 

(D) The trustee of a pension or other 

employee benefit plan, with respect to 

funds of the plan; 

(E) A person acting as a plan 

administrator or an investment adviser 

in connection with a pension plan or 

other employee benefit plan provided 

that that person is performing 

managerial functions with respect to the 

plan; 

(F) The trustee of a testamentary 

account; 

(G) The trustee of an irrevocable trust 

(other than one described in paragraph 

(1)(B)), as long as the trust in question 

has not been established for the primary 

purpose of placing funds with insured 

depository institutions; 

(H) A trustee or custodian of a 

pension or profit-sharing plan qualified 

under section 401(d) or 403(a) of Title 

26; or 

(I) An agent or nominee whose 

primary purpose is not the placement of 

funds with depository institutions.31

In 1992, the FDIC incorporated in its 

regulations the list of statutory 

exceptions to the ‘‘deposit broker’’ 


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32 12 CFR 337.6(a)(5)(ii)(J). As provided earlier, 

the FDIC added this exception in response to 

comments submitted in response to a 1992 notice 

of proposed regulation. 

33 12 U.S.C. 1831f(g)(4). 

34 12 U.S.C. 1831f(g)(2)(D) and (E). 

35 12 U.S.C. 1831f(g)(2)(H). 

36 12 U.S.C. 1831f(g)(2)(I). 

definition and added as an additional 

exception, ‘‘an insured depository 

institution acting as an intermediary or 

agent of a U.S. government department 

or agency for a government sponsored 

minority or women-owned depository 

institution.’’ 32

(a) IDI Exception 

The statute provides an exception for 

an IDI with respect to funds placed with 

that IDI. Staff notes that based on the 

plain language of the statute, staff has 

consistently applied this exception 

strictly to the IDI itself and not to 

separately incorporated legal entities 

such as subsidiaries or other affiliates. 

One challenging issue relates to whollyowned subsidiaries that place deposits 

under an exclusive relationship with the 

parent IDI. With regard to whollyowned subsidiaries, for some purposes 

the subsidiary is treated as part of the 

parent IDI (e.g., certain financial 

reporting); whereas for other purposes— 

such as under the Bank Merger Act and 

for receivership purposes—they are 

treated separately. 

(b) Employee Exception 

Section 29(g)(2)(B) of the FDI Act 

provides that ‘‘deposit broker’’ does not 

include ‘‘an employee of an insured 

depository institution, with respect to 

funds placed with the employing 

depository institution’’ (employee 

exception). The employee exception 

recognizes that banks are corporate 

entities that operate through the natural 

persons they employ. 

To address concerns that the 

employee exception could be used to 

evade the deposit broker definition, the 

term ‘‘employee’’ is defined for 

purposes of section 29, as any 

employee: 

1. Who is employed exclusively by 

the insured depository institution; 

2. Whose compensation is primarily 

in the form of a salary; 

3. Who does not share such 

employee’s compensation with a 

deposit broker; 

4. Whose office space or place of 

business is used exclusively for the 

benefit of the insured depository 

institution which employs such 

individual.33

Particularly after the passage of the 

Gramm-Leach-Bliley Act and the 

permissibility of additional 

relationships among affiliated entities, 

FDIC staff has dealt with an increase in 

questions about IDI employees who also 

have some form of contractual 

relationship with a third party, usually 

an affiliate of the IDI. In addition, FDIC 

staff has informally addressed questions 

related to the use of premises that are 

shared by the IDI and an affiliate. 

(c) Pension or Other Employee Benefit 

Plans 

Section 29(g)(2)(D) and (E) exclude 

from the deposit broker definition, 

trustees of pension and other employee 

benefit plans with respect to funds in 

the plan, and administrators or 

investment advisors provided that the 

person is performing managerial 

functions with respect to the plan.34

Section 29(g)(2)(H) excludes a trustee or 

custodian of a pension or profit-sharing 

plan under sections 401(d) or 403(a) of 

the Internal Revenue Code.35

Individual retirement accounts (IRAs) 

are retirement accounts set up outside of 

a pension plan or employee benefit plan 

and thus are not expressly covered by 

these exceptions. Certain non-retirement 

savings plans are also granted taxfavored status under the Internal 

Revenue Code, such as 529 savings 

plans for higher education tuition and 

health savings accounts but are not 

expressly covered by the exception. If a 

bank’s trust department serves as the 

trustee or custodian of such plans, and 

the trust has not been established for the 

primary purpose of placing funds with 

IDIs, the plans’ deposits would not be 

treated as brokered deposits because of 

the exception for trust departments. 

FDIC staff has received a number of 

questions about this exception. 

(d) Primary Purpose Exception 

The primary purpose exception 

applies to ‘‘an agent or nominee whose 

primary purpose is not the placement of 

funds with depository institutions.’’ 36

In particular, the primary purpose 

exception applies to a third party when 

that third party is acting as agent/ 

nominee for the depositor. Staff’s 

evaluation of a third party’s primary 

purpose in placing deposits has been in 

the context of that particular agent/ 

principal relationship. 

In interpreting what it means for a 

third-party agent to act pursuant to a 

‘‘primary purpose,’’ staff has generally 

analyzed whether placing—or 

facilitating the placement—of deposits 

of its customers/clients when acting as 

agent for those customers/clients, is for 

a substantial purpose other than to 

provide (1) deposit insurance, or (2) a 

deposit-placement service. In analyzing 

this principle, staff has considered 

whether the deposit-placement activity 

is incidental to some other purpose. 

In determining whether a depositplacement activity is incidental to some 

other purpose, staff reviews the reason 

or intent of the third party when acting 

as agent or nominee in placing the 

deposits, as well as other factors which 

might indicate whether the third party 

agent is incentivized to place deposits at 

the IDI. Factors that staff has considered 

include the existence and structure of 

fee arrangements and of any 

programmatic relationship between the 

third party and the insured depository 

institution. 

• Fees: 

Æ Whether the entity placing deposits 

receives fees from the insured 

depository institution that are based 

(directly or indirectly) on the amount of 

deposits or the number of deposit 

accounts opened. 

Æ Whether the fees can be justified as 

compensation for recordkeeping or 

other work performed by the third party 

for the IDI (as opposed to compensation 

for bringing deposits to the IDI). 

• Programmatic relationship: 

Æ Whether there is a formal or 

contractual agreement between IDIs and 

the placing/referring entity to place or 

steer deposits to certain IDIs. 

Importantly, when interpreting the 

applicability of the primary purpose 

exception, staff analyzes the deposit 

placement arrangement, including the 

underlying agreements, between the 

third party agent, the depositor, and the 

IDI to determine the primary purpose of 

the agent. The exception applies to 

agents or nominees, which by 

definition, act on behalf of principals. 

When acting in that capacity, the third 

party agent/nominee is limited to the 

principal’s goals and objectives. Staff 

does not solely rely upon the business 

purpose of the third party involved. 

Staff has not considered the size of the 

third party or the amount or percentage 

of revenue that the deposit-placement 

activity generates. 

Primary Purpose Exception for 

Affiliated Sweeps 

Beginning in 1999, the FDIC became 

aware of broker dealers offering their 

brokerage customers an automatic 

sweep program by which customers’ 

idle funds were swept to affiliated 

insured depository institutions. 

In 2005, the FDIC’s General Counsel 

issued a staff opinion indicating FDIC 

staff view that, when certain conditions 

are observed, the primary purpose of a 

broker dealer in sweeping customer 

funds into deposit accounts at its 

affiliated IDI is to facilitate the 


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37See 12 U.S.C. 371c–1. 

38See generally, FDIC Staff Adv. Op. Nos. 90–24 

(June 12, 1990); 92–50 (July 24, 1992); 02–04 

(November 13, 2002). 39See FDIC Staff Advisory Opinion 04–04. 

customers’ purchase and sale of 

securities. Among the conditions are 

that funds are not swept to a time 

deposit account and do not exceed 10 

percent of the total assets handled by 

the affiliated broker dealer. The insured 

depository institution is permitted to 

pay fees to the affiliated broker dealer 

but the fees must be flat fees (i.e., per 

account or per customer fees) 

representing payment for recordkeeping 

or administrative services and not for 

the placement of deposits. The fee 

arrangements must satisfy Section 23B 

of the Federal Reserve Act.37

(e) Other Issues 

Deposit Listing Services. Deposit 

listing services come in different forms, 

but all connect those seeking to place a 

deposit with those seeking a deposit by 

listing the deposit rates of IDIs. 

Depositors use listing services to find 

the best rate available for a given 

deposit type and, in the case of a CD, 

a term. Since the statute was first 

enacted, staff has distinguished between 

a company that compiles information 

about interest rates in passive manner 

versus a deposit broker that is in the 

business of placing or facilitating the 

placement of deposits. A particular 

company can advertise itself as a listing 

service as well as meet the definition of 

a ‘‘deposit broker.’’ In recognition of this 

possibility, staff at the FDIC developed 

criteria for analyzing whether a ‘‘listing 

service’’ acts as a ‘‘deposit broker.’’ 38

In 2004 FDIC staff provided criteria to 

assist the industry in analyzing whether 

a deposit listing services would be 

viewed as a deposit broker. In 

particular, staff advisory opinions 

indicate that a listing service is not 

viewed as a deposit broker if it meets 

the following criteria: 

(1) The person or entity providing the 

listing service is compensated solely by 

means of subscription fees (i.e., the fees 

paid by subscribers as payment for their 

opportunity to see the rates gathered by 

the listing service) and/or listing fees 

(i.e., the fees paid by depository 

institutions as payment for their 

opportunity to list or ‘‘post’’ their rates). 

The listing service does not require a 

depository institution to pay for other 

services offered by the listing service or 

its affiliates as a condition precedent to 

being listed; 

(2) The fees paid by depository 

institutions are flat fees: They are not 

calculated on the basis of the number or 

dollar amount of deposits accepted by 

the depository institution as a result of 

the listing or ‘‘posting’’ of the depository 

institution’s rates; 

(3) In exchange for these fees, the 

listing service performs no services 

except: (A) The gathering and 

transmission of information concerning 

the availability of deposits; and/or (B) 

the transmission of messages between 

depositors and depository institutions 

(including purchase orders and trade 

confirmations). In publishing or 

displaying information about depository 

institutions, the listing service must not 

attempt to steer funds toward particular 

institutions (except that the listing 

service may rank institutions according 

to interest rates and also may exclude 

institutions that do not pay the listing 

fee). Similarly, in any communications 

with depositors or potential depositors, 

the listing service must not attempt to 

steer funds toward particular 

institutions; and 

(4) The listing service is not involved 

in placing deposits. Any funds to be 

invested in deposit accounts are 

remitted directly by the depositor to the 

insured depository institution and not, 

directly or indirectly, by or through the 

listing service.39

In 2004, when staff last provided its 

views on listing services, listing services 

had already evolved into internet 

exchange platforms with automated 

order entry and confirmation services. 

At the time, however, listing service 

sites did not provide any advice to 

prospective depositors, and there was 

only a flat subscription fee paid by both 

the banks and those seeking to view the 

posted rates. Today, the FDIC has 

observed that certain listing service 

websites provide additional services. 

For example, based upon information 

gathered from bankers interested in 

participating in listing services, the 

FDIC notes that some listing services 

appear to: 

Æ Offer advice to banks on liability 

and funds management and regulatory 

compliance screening for subscribing 

banks. 

Æ Send customer information (on 

behalf of the prospective depositors) 

directly to the banks that are listing 

rates. 

Æ Charge a fee to banks based upon 

the asset size of the bank, rather than a 

flat subscription fee. 

Æ Post rates of ‘‘featured’’ or 

‘‘preferred’’ vendors at the very top of 

its rate board. 

The FDIC notes the ambiguity over 

how these new listing service features 

could be applied in light of the 2004 

criteria. The features above seem to 

indicate that some listing services are no 

longer acting in a passive capacity but 

are instead steering deposits to 

particular institutions or are otherwise 

providing services that meet the 

definition of ‘‘deposit broker.’’ 

Accounting or related software 

products that contemplate the bank 

using the same software. Some 

companies provide accounting and 

other administrative support via 

software services to clients. These 

companies, on behalf of their clients, 

place deposits at either one or a group 

of preferred banks. Because the 

companies place deposits at IDIs, the 

software companies meet the definition 

of ‘‘deposit broker’’ (unless they meet 

one of the exceptions). The primary 

purpose exception applies to an agent or 

nominee whose primary purpose is not 

the placement of funds with depository 

institutions. Banks who receive deposits 

from software companies argue that the 

primary purpose of the software 

companies is to provide accounting 

services (e.g., bankruptcy management) 

and the placement of deposits is 

incidental to this purpose. In analyzing 

whether a particular arrangement meets 

the primary purpose arrangement, as 

noted above, staff currently reviews 

whether the placement (of third party 

funds) is for a substantial purpose other 

than to provide (1) deposit insurance, or 

(2) a deposit-placement service. In 

previous cases that staff reviewed 

relating to accounting software 

products, staff has not distinguished 

between providing integrated 

accounting software and providing 

access to a deposit account that offers 

core banking functions (such as daily 

cash management). Moreover, in the 

previous arrangements that staff has 

reviewed, there is typically a 

contractual volume based fee being paid 

by the bank to the software company 

based upon the volume of deposits 

being placed. As a result, staff has 

viewed that the software companies are 

incentivized to place funds of 

prospective depositors at preferred 

banks because of the fees that the 

placement generates. 

Prepaid cards. Some companies 

operate general purpose prepaid card 

programs, in which prepaid cards are 

sold to members of the public through 

the assistance of a prepaid card 

company or a program manager. After 

collecting funds from the cardholders, 

sometimes at retail stores or directly 

from the card company, funds are 

placed into a custodial deposit account 

at an insured depository institution 

(sometimes with ‘‘pass-through’’ deposit 

insurance coverage). The funds may be 

accessed by the cardholders through the 


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40See H.R. Conf. Rep. No. 101–222 at 402–403 

(1989), reprinted in 1989 U.S.C.C.A.N. 432, 441–42. 

41 12 U.S.C. 1831f(e). 

42 12 U.S.C. 1831f(g)(3). 

43 12 U.S.C. 1831f(h). 

44 12 U.S.C. 1831f(e). 

45 12 U.S.C. 1831f(g)(3). 

46 Id. 

47 12 U.S.C. 1831f(h). 

48See 57 FR 23933 (1992); 74 FR 26516 (2009). 

use of their cards. In regard to this 

scenario, staff at the FDIC has taken the 

position that the prepaid card company 

or the program manager likely qualifies 

as a ‘‘deposit broker’’ because it is a 

third party that is in the business of 

facilitating the placement of customer 

deposits at an insured depository 

institution. Some have argued that a 

particular prepaid card arrangement is 

covered by the ‘‘primary purpose 

exception’’—specifically, that the 

‘‘primary purpose’’ of a prepaid card 

company (in establishing deposit 

accounts at an insured depository 

institution) is not to provide the 

cardholders with a deposit-placement 

service, but to enable the cardholders to 

make purchases through the interbank 

payment system. Staff at the FDIC has 

not distinguished between (1) acting 

with the purpose of placing deposits for 

other parties, and (2) acting with the 

purpose of enabling other parties to use 

deposits to make purchases. When 

funds are placed into demand deposit 

accounts (as in the case of custodial 

accounts used by prepaid card 

companies), the deposits will be 

available for withdrawals or transfers or 

spending. Thus, prepaid card 

companies have not been viewed as 

meeting the ‘‘primary purpose’’ 

exception. 

Software applications for personal use 

that involve funds being placed at an 

insured depository institution. Some 

applications provide customers the 

opportunity to link their existing bank 

accounts (and other accounts, such as 

credit cards, and 401k)—with software 

applications—in an effort to provide 

efficiencies in budgeting, bill-paying, 

and opening up a new deposit account. 

In some cases, the application 

aggregates customer information based 

upon available account balances and 

spending patterns and provides that 

information to depository institutions to 

assist in targeting certain customers 

with financial products. Once the 

customer is targeted with a financial 

product, the customer may be 

transferred to the bank to open up the 

deposit account or the application may 

assist in transferring customer 

information to the bank for purposes of 

establishing the deposit account. The 

software provider may receive 

compensation from the financial 

institution based upon the referral. FDIC 

staff has received inquiries about 

whether various arrangements between 

software applications and IDIs should 

be viewed as brokered. 

D. Interest Rate Restrictions 

As noted earlier, the purpose of 

Section 29 generally is to limit the 

acceptance or solicitation of certain 

deposits by insured depository 

institutions that are not well capitalized. 

This purpose is promoted through two 

means: (1) The prohibition against the 

acceptance of brokered deposits by 

depository institutions that are less than 

well capitalized (as described above); 

and (2) certain restrictions on the 

interest rates that may be paid by such 

institutions. In enacting section 29, 

Congress added the interest rate 

restrictions to prevent institutions from 

avoiding the prohibition against the 

acceptance of brokered deposits by 

soliciting deposits internally through 

‘‘money desk operations.’’ Congress 

viewed the gathering of deposits by 

weaker institutions through either thirdparty brokers or ‘‘money desk 

operations’’ as potentially an unsafe or 

unsound practice.40 The FDIC has 

simplified the application of these 

restrictions through two rulemakings. 

Under Section 29, well-capitalized 

institutions can pay any rate of interest 

on any deposit. However, the statute 

imposes different interest rate 

restrictions on different categories of 

insured depository institutions that are 

less than well capitalized. These 

categories are (1) adequately-capitalized 

institutions with waivers to accept 

brokered deposits (including reciprocal 

deposits excluded from being 

considered brokered deposits); 41 (2) 

adequately-capitalized institutions 

without waivers to accept brokered 

deposits; 42 and (3) undercapitalized 

institutions.43 The statutory restrictions 

for each category are described in detail 

below. 

Adequately-capitalized institutions 

with waivers to accept brokered 

deposits. Institutions in this category 

may not pay a rate of interest on 

deposits that ‘‘significantly exceeds’’ the 

following: ‘‘(1) The rate paid on deposits 

of similar maturity in such institution’s 

normal market area for deposits 

accepted in the institution’s normal 

market area; or (2) the national rate paid 

on deposits of comparable maturity, as 

established by the [FDIC], for deposits 

accepted outside the institution’s 

normal market area.’’ 44

Adequately capitalized institutions 

without waivers to accept brokered 

deposits. In this category, institutions 

may not offer rates that ‘‘are 

significantly higher than the prevailing 

rates of interest on deposits offered by 

other insured depository institutions in 

such depository institution’s normal 

market area.’’ 45 For institutions in this 

category, the statute restricts interest 

rates in an indirect manner. Rather than 

simply setting forth an interest rate 

restriction for adequately capitalized 

institutions without waivers, as noted 

previously, the statute defines the term 

‘‘deposit broker’’ to include ‘‘any 

insured depository institution that is not 

well capitalized . . . which engages, 

directly or indirectly, in the solicitation 

of deposits by offering rates of interest 

which are significantly higher than the 

prevailing rates of interest on deposits 

offered by other insured depository 

institutions in such depository 

institution’s normal market area.’’ 46 In 

other words, the depository institution 

itself is a ‘‘deposit broker’’ if it offers 

rates significantly higher than the 

prevailing rates in its own ‘‘normal 

market area.’’ Without a waiver, the 

institution cannot accept deposits from 

a ‘‘deposit broker.’’ Thus, the institution 

cannot accept these deposits from itself. 

In this indirect manner, the statute 

prohibits institutions in this category 

from offering rates significantly higher 

than the prevailing rates in the 

institution’s ‘‘normal market area.’’ 

Undercapitalized institutions. In this 

category, institutions may not offer rates 

‘‘that are significantly higher than the 

prevailing rates of interest on insured 

deposits (1) in such institution’s normal 

market areas; or (2) in the market area 

in which such deposits would otherwise 

be accepted.’’ 47

Rulemakings Related to Section 29’s 

Interest Rate Restrictions 

The FDIC has implemented the 

interest rate restrictions under section 

29 of the FDI Act through two 

rulemakings.48 Although the statute, as 

noted above, sets forth a basic 

framework, it does not provide certain 

key details, such as definitions for the 

terms—‘‘national rate,’’ ‘‘significantly 

exceeds,’’ ‘‘significantly higher,’’ and 

‘‘market area.’’ As a result, in 1992, the 

FDIC defined these key terms before 

updating the ‘‘national rate’’ and 

clarifying the rate restrictions again in 

2009. 

‘‘Significantly Exceeds.’’ Through 

Section 337.6, the FDIC has provided 

that a rate of interest ‘‘significantly 

exceeds’’ another rate, or is 

‘‘significantly higher’’ than another rate, 

if the first rate exceeds the second rate 


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49See 12 CFR 337.6(b)(2)(ii), (b)(3)(ii) and (b)(4). 

See also, 55 FR 39135 (1990) (FDIC’s final rule that 

took the view that ‘‘significantly exceeds’’ means 

more than 50 basis points. At the time, this was 

believed to be a reasonable compromise between 

the need to permit troubled institutions to compete 

on a reasonable basis in their market area and yet 

prevent such institutions from bidding excessively 

for an increased share of market-area deposits by 

paying excessive rates). 

50 57 FR at 23939. 

51See 57 FR 23933 (1992) and 74 FR 26516 

(2009). 

52 Id. 

53 12 CFR 337.6(b)(2)(ii)(B). 

54 57 FR 23933, 23938 (June 5, 1992). 

55 Id. at 23939. 

56See 74 FR 26516 (2009). 

57 12 CFR 337.6(f). 

by more than 75 basis points.49 In 

adopting this standard, the FDIC offered 

the following explanation: ‘‘Based upon 

the FDIC’s experience with the brokered 

deposit prohibitions to date, it is 

believed that this number will allow 

insured depository institutions subject 

to the interest rate ceilings . . . to 

compete for funds within markets, and 

yet constrain their ability to attract 

funds by paying rates significantly 

higher than prevailing rates.’’ 50 This 

interpretation of the statute has 

remained unchanged since the 1992 

rulemaking. 

‘‘Market Area.’’ In Section 337.6, prior 

to the adoption of the 2009 final rule, 

the term ‘‘market area’’ was defined as 

follows: ‘‘A market area is any readily 

defined geographical area in which the 

rates offered by an one insured 

depository institution soliciting deposits 

in that area may affect the rates offered 

by other insured depository institutions 

in the same area.’’ 51 At the time, the 

FDIC reasoned that the market area will 

be determined on a case-by-case basis, 

based on the evident or likely impact of 

a depository institution’s solicitation of 

deposits in a particular area, taking into 

account the means and media used and 

volume and sources of deposits 

resulting from such solicitation.52

The ‘‘National Rate.’’ In Section 337.6, 

as part of the 1992 rulemaking, the 

‘‘national rate’’ was defined as follows: 

‘‘(1) 120 percent of the current yield on 

similar maturity U.S. Treasury 

obligations; or (2) In the case of any 

deposit at least half of which is 

uninsured, 130 percent of such 

applicable yield.’’ 53 In defining the 

‘‘national rate’’ in this manner, the FDIC 

understood that the spread between 

Treasury securities and depository 

institution deposits can fluctuate 

substantially over time but relied upon 

the fact that such a definition is 

‘‘objective and simple to administer.’’ 54

By using percentages (120 percent or 

130 percent of the yield on U.S. 

Treasury obligations) instead of a fixed 

number of basis points, the FDIC hoped 

to ‘‘allow for greater flexibility should 

the spread to Treasury securities widen 

in a rising interest rate environment.’’ In 

deciding not to rely on published 

deposit rates, the FDIC offered the 

following explanation: ‘‘The FDIC 

believes this approach would not be 

timely because data on market rates 

must be available on a substantially 

current basis to achieve the intended 

purpose of this provision and permit 

institutions to avoid violations. At this 

time, the FDIC has determined not to tie 

the national rate to a private 

publication. The FDIC has not been able 

to establish that such published rates 

sufficiently cover the markets for 

deposits of different sizes and 

maturities.’’ 55

2009 Rulemaking on the Interest Rate 

Restrictions 

For many years, the 1992 definition of 

‘‘national rate’’ functioned well because 

rates on Treasury obligations tracked 

closely with rates on deposits. By 2009, 

however, the rates on certain Treasury 

obligations were low compared to 

deposit rates. Consequently, the 

‘‘national rate’’ as defined in the FDIC’s 

regulations became artificially low. By 

setting a low rate, the FDIC’s regulations 

required some insured depository 

institutions to offer unreasonably low 

rates on some deposits, thereby 

restricting access even to market-rate 

funding. 

As part of the 2009 rulemaking, the 

FDIC addressed two issues that 

developed after the 1992 rulemaking: (1) 

The obsolescence of the FDIC’s 1992 

definition of the ‘‘national rate’’; and (2) 

the difficulty experienced by insured 

depository institutions and examiners in 

determining prevailing rates in its 

‘‘market areas.’’ 

In response to the first problem, the 

FDIC redefined the ‘‘national rate’’ as ‘‘a 

simple average of rates paid by all 

insured depository institutions and 

branches for which data are available.’’ 

As noted in the 2009 rulemaking, the 

updated ‘‘national rate’’ methodology 

represented an objective average and the 

exclusion of certain branches or offices 

was viewed by the FDIC, at the time, as 

contrary to providing a meaningful 

restriction on insured depository 

institutions that are not well 

capitalized.56

In response to the second problem, 

the FDIC created a presumption that the 

prevailing rate in any market would be 

the national rate (as defined above). An 

insured depository institution could 

rebut this presumption by presenting 

evidence to the FDIC that the prevailing 

rate in a particular market is higher than 

the national rate. If the FDIC agreed 

with this evidence, the institution 

would be permitted to pay as much as 

75 basis points above the local 

prevailing rate. In evaluating this 

evidence, the FDIC may use segmented 

market rate information (for example, 

evidence by State, county or MSA). 

Also, the FDIC may consider evidence 

as to the rates offered by credit unions 

but only if the insured depository 

institution competes directly with the 

credit unions in the particular market. 

Finally, the FDIC may consider 

evidence that the rates on certain 

deposit products differ from the rates on 

other products. For example, in a 

particular market, the rates on NOW 

accounts might differ from the rates on 

MMDAs. NOW accounts might be 

distinguished from MMDAs because the 

two types of accounts are subject to 

different legal requirements.57

Ultimately, the 2009 rulemaking 

simplified the approach of applying the 

rate restrictions and, importantly, has 

provided community banking 

institutions, that may not compete in 

the national deposit marketplace (e.g., 

listing services), the ability to offer 

competitive deposit rates in its local 

market area. 

Additional Interest Rate Issues 

Since the FDIC’s adoption of the 2009 

rulemaking, federal funds rates stayed at 

historically low levels and only recently 

have begun to rise. In addition, 

institutions also have created new 

products that do not fit into the posted 

national rates and rate caps. 

Calculation of rates. Since the crisis 

that began in 2008, the ‘‘national rate’’ 

has been relatively low due to the low 

interest rate environment. Moreover, 

because the national rate is an average 

for all banks and branches, the largest 

banks with large numbers of branches 

have had a disproportional effect on 

average interest rates. Even as other 

interest rates have begun to rise, the 

average has stayed low as the largest 

banks have been slow to increase 

interest rates on deposits. 


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New products. The FDIC has recently 

seen an increase in promotional deposit 

products and products with special 

features. These products and 

promotions are generally not compatible 

with the standard products included in 

the FDIC’s published weekly national 

rate caps. An example of a product with 

a special feature is one that provides a 

one-time cash payment for opening up 

a deposit account or provides airline 

miles or other bonuses with specific 

deposit products. Such deposit products 

may have common maturities (or be 

demand accounts) and as a result they 

may be included as part of the ‘‘national 

rate’’ calculation without 

acknowledgement of the up-front 

payment or other bonus received in 

place of interest paid on the deposit. 

Special features. Some institutions are 

also offering deposit products with 

special features that may raise questions 

about how the rate cap should apply. 

Below are examples of three types of 

deposit products with special features: 

Æ Step up rates. Certain deposit 

products have variable rate features that 

allow the interest rate to increase before 

the deposit matures. With these 

products, particularly time deposits 

with longer maturities, the institution 

could fall to less than well capitalized 

during the term of the deposit. As a 

result, and as the FDIC has seen in the 

past, an institution could pay a rate that 

exceeds the interest rate restrictions 

after the downgrade. 

Æ Atypical maturities. Unusual 

maturity periods (for example, 13 or 15 

months instead of 12 or 18 months) 

make it difficult to compare with either 

national rates or prevailing local rates. 

Æ Exceptionally long maturities for 

time deposits combined with penaltyfree early withdrawal. In some cases, 

institutions have structured deposit 

products with exceptionally long 

maturities in order to extrapolate 

exceptionally high interest rates for the 

deposits coupled with withdrawal rights 

that are significantly shorter than the 

term of the deposit maturity (e.g., 7 day 

penalty period on a 5 year certificate of 

deposit). 

III. Request for Comments 

The FDIC seeks comment on all 

aspects of its regulatory approach to 

brokered deposits and interest rate 

restrictions, and in particular the 

following: 

Æ Are there ways the FDIC can 

improve its implementation of Section 

29 of the FDI Act while continuing to 

protect the safety and soundness of the 

banking system? If so, how? 

Brokered Deposits 

Æ Are there types of deposits that are 

currently considered brokered that 

should not be considered brokered? If 

so, please explain why. 

Æ Are there types of deposits that are 

currently not considered brokered that 

should be considered brokered? If so, 

please explain why. 

Æ Are there specific changes that have 

occurred in the financial services 

industry since the brokered deposits 

regulation was adopted that the FDIC 

should be cognizant of as it reviews the 

regulation? If so, please explain. 

Æ Do institutions currently have 

sufficient clarity regarding who is or is 

not a deposit broker and what is or is 

not a brokered deposit? Are there ways 

the FDIC can provide additional clarity 

through updates to the brokered 

deposits regulation, consistent with the 

statute and the policy considerations 

described above? 

Æ Are there areas where changes 

might be warranted but could not be 

effectuated under the current statute? 

Are there any statutory changes that 

warrant consideration from Congress? 

Æ Should the FDIC make changes to 

the Call Report instructions so that the 

agency can gather more granular 

information about types of brokered 

deposits? 

Æ In general, the FDIC welcomes any 

additional data or market information 

related to brokered deposits, 

particularly related to those types of 

brokered deposits that are not 

specifically reported by institutions in 

their Call Reports (e.g., Master 

Certificates of Deposits held in the name 


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58An automatic transfer service account is a 

deposit or account of an individual or sole 

proprietorship on which the depository bank has 

reserved the right to require at least seven days’ 

written notice prior to withdrawal or transfer of any 

funds in the account and from which, pursuant to 

written agreement arranged in advance between the 

reporting bank and the depositor, withdrawals may 

be made automatically through payment to the 

depository bank itself or through transfer of credit 

to a demand deposit or other account in order to 

cover checks or drafts drawn upon the bank or to 

maintain a specified balance in, or to make periodic 

transfers to, such other accounts. 

59Through 2010 core deposits include insured 

brokered deposits. Beginning in 2011, brokered 

deposits are excluded from core deposits. 

of DTC and deposits placed through 

unaffiliated sweep programs). 

Interest Rate Restrictions 

Æ Are there alternatives that the FDIC 

should consider in addressing Section 

29’s interest rate restrictions for less 

than well capitalized institutions? 

Æ Should the methodology used to 

calculate the ‘‘national rate’’ be 

changed? If so, how? 

Æ Should there remain a presumption 

that the prevailing rate in any ‘‘market 

area’’ is the national rate? If not, how 

should the FDIC define the ‘‘normal 

market area’’? 

Æ Should the amount of the rate cap, 

currently 75 basis points over either the 

national rate or the prevailing market 

rate, be revised? If so, how? 

Æ How should deposits with 

promotional or special features be 

treated with respect to the national rate 

or the prevailing market rate? 

Æ How should the rates offered by 

internet-based or electronic commercebased institutions be calculated? 

Appendix 1 

Descriptive Statistics on Core and 

Brokered Deposits 

Core Deposits 

Core deposits are not defined by 

statute. Rather, they are defined for 

analytical and examination purposes in 

the Uniform Bank Performance Report 

(UBPR). Through 2010, the Federal 

Financial Institutions Examination 

Council (FFIEC) defined ‘‘core deposits’’ 

to include all demand and savings 

deposits, including money market 

deposit, NOW and ATS accounts, other 

savings deposits, and time deposits in 

amounts under $100,000.58 Under this 

definition, core deposits were 

equivalent to total domestic deposits 

less time deposits over $100,000 and 

included insured brokered deposits. As 

of March 31, 2011, the definition was 

revised to reflect the permanent increase 

to FDIC deposit insurance coverage from 

$100,000 to $250,000 and to exclude 

insured brokered deposits from core 

deposits. This revision defines core 

deposits as the sum of demand deposits, 

all NOW and ATS accounts, MMDAs, 

other savings deposits and time deposits 

under $250,000, minus all brokered 

deposits under $250,000. For periods 

before March 2011, the definition was 

revised to the sum of demand deposits, 

all NOW and ATS accounts, MMDAs, 

other savings deposits and time deposits 

under $100,000, minus all brokered 

deposits under $100,000. 

Historically, reliance on core deposits 

has varied by bank size. Banks with less 

than $1 billion in total assets generally 

have had the heaviest reliance on core 

deposits, and banks with $50 billion or 

more in total assets have had the least 

reliance on core deposits. Since 2010, 

the ratio of core deposits to total assets 

has changed less for smaller banks than 

it has for larger banks. At year-end 2010, 

core deposits equaled 75 percent of total 

assets at banks with less than $1 billion 

in assets, but only 47 percent for banks 

with $50 billion or more in total assets. 

By the third quarter of 2018, core 

deposits equaled 76 percent of total 

assets at banks with less than $1 billion 

in assets and 58 percent of at banks with 

$50 billion or more in total assets (See 

Chart 1.) 

Through mid-year 2009, almost all 

core deposits at community banks were 

estimated to be insured, but, at the end 

of third quarter 2009, when banks began 

reporting insured deposits at the then 

temporary insurance limit of $250,000, 

estimated insured deposits were greater 

than core deposits. Estimated insured 

deposits represented a smaller share of 

core deposits at the largest banks, as a 

result of their holdings of large 

uninsured demand deposits. At 


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60Through 2010 core deposits include insured 

brokered deposits. Beginning in 2011, brokered 

deposits are excluded from core deposits. 

September 30, 2010, for banks with 

assets over $50 billion, estimated 

insured deposits represented only 69 

percent of core deposits, but, at March 

31, 2011, after the coverage of all 

noninterest bearing transaction accounts 

over $250,000 was established 

temporarily under the Dodd-Frank Act, 

estimated insured deposits rose to 84 

percent. (See Chart 2.) 

Note: From October 14, 2008 to December 

31, 2010, domestic non-interest bearing 

transaction accounts were guaranteed in full 

under the Transaction Account Guarantee 

Program (TAG), part of the FDIC’s Temporary 

Liquidity Guarantee Program (TLGP). From 

December 31, 2010 to December 31, 2012, the 

Dodd-Frank Act provided temporary 

unlimited deposit insurance coverage for 

non-interest bearing transaction accounts. 

These programs account for the observed 

shifts up and down in the Estimated Insured 

Deposits as a Share of ‘‘Core’’ Deposits 

shown in the chart during these periods. 

Effective with the March 31, 2011, 

UBPR, the FFIEC revised the definition 

of core deposits to take into account the 

increase in the deposit insurance limit 

to $250,000 under Dodd-Frank. The new 

definition includes time deposits up to 

$250,000 but excludes brokered 

deposits of any denomination. Using 

Call Report and Thrift Financial Report 

(TFR) data as of March 31, 2011, the 

new definition of core deposits added 

$24.9 billion (or 0.3 percent) to core 

deposits. However, the increase in core 

deposits, as the result of the new 

definition, occurred almost exclusively 

at smaller banks and thrifts, since the 

decrease in core deposits due to 

exclusion of brokered deposits tended to 

be less than the increase in core 

deposits due to inclusion of time 

deposits within the new threshold of up 

to $250,000. Core deposits at banks and 

thrifts with assets under $10 billion 

increased by $143.2 billion under the 

new definition, but core deposits at 

banks with assets of at least $10 billion 

declined by $118.3 billion. Large credit 

card banks and specialty lenders with 

affiliated brokerage firms were among 

those banks with the largest decline in 

core deposits as a result of the revised 

definition. 

Brokered Deposits 

FDIC-insured banks report total 

brokered deposits and the amount of 

brokered deposits under the insurance 

limit on their Call Reports and TFRs. 


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61Certain brokered retirement accounts are 

included in insured brokered deposits. 

Before 2010, brokered deposits were 

reported as insured, as any deposits, up 

to the $100,000 threshold. Beginning 

March 31, 2010, the threshold for 

reporting insured brokered deposits on 

Call Reports and TFRs was increased to 

$250,000.61 Insured depository 

institutions also began reporting total 

reciprocal brokered deposits in their 

June 30, 2009, Call Reports and TFRs. 

The Economic Growth, Regulatory 

Reform, and Consumer Protection Act, 

enacted on May 24, 2018, allows certain 

banks to except a limited amount of 

reciprocal deposits from brokered 

deposits. 

As of September 30, 2018, brokered 

deposits totaled $985.7 billion. Fewer 

than half of all FDIC-insured banks 

(2,221 banks, or 40.6 percent) reported 

brokered deposits on their September 

30, 2018, Call Reports. As of this date, 

brokered deposits made up 8.0 percent 

of industry domestic deposits, in 

contrast to second quarter 2009 when 

banks began reporting total reciprocal 

brokered deposits, brokered deposits 

accounted for 10.1 percent of industry 

domestic deposits. 

BROKERED DEPOSITS HELD BY INSURED DEPOSITORY BANKS AS OF SEPTEMBER 30, 2018 

Asset size group Total number 

of banks 

Number of 

banks with 

brokered deposits 

Total brokered 

deposits 

(billions) 

Share of total 

brokered deposits 

(%) 

Total domestic 

deposits 

Share of total 

domestic deposits 

(%) 

Under $1 Billion ....................................... 4,704 1,656 $31.92 3.2 $988.05 8.0 

$1–10 Billion ............................................ 635 439 90.16 9.1 1,349.56 11.0 

$10–50 Billion .......................................... 97 89 171.87 17.4 1,605.40 13.0 

Over $50 Billion ....................................... 41 37 691.78 70.2 8,378.84 68.0 

All Banks ........................................... 5,477 2,221 985.73 ........................ 12,321.84 ........................

Brokered deposits typically make up 

a lower share of deposit funding for 

small banks compared to banks with 

$10 billion or more in assets. In 

aggregate, banks with assets between 

$10 billion and $50 billion reported 

brokered deposits equal to 10.7 percent 

of their domestic deposits as of 

September 30, 2018, the highest of any 

asset cohort group, while banks with 

assets under $1 billion reported 

brokered deposits equal to just 3.2 

percent of domestic deposits. (See Chart 

3.) 


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62See 12 U.S.C. 1831f; 12 CFR 337.6. 

63Please note that the data and chart are based 

only on capital ratio thresholds used for PCA. 

However, an IDI that otherwise meets the ratio 

threshold requirements for the well capitalized PCA 

category: (1) Will be classified as an adequately 

capitalized if it is subject to a written agreement, 

order, capital directive, or prompt corrective action 

directive to meet and maintain a specific capital 

level for any capital measure; and (2) may be 

reclassified as adequately capitalized, if, following 

notice and an opportunity for hearing, the bank is 

determined to be unsafe or unsound or has failed 

to correct a less-than-satisfactory rating for asset 

quality, management, earnings, or liquidity. See 12 

CFR 6.4(c)(1)(v) and (e), 12 CFR 208.43(b)(1)(v) and 

(c), and 12 CFR 324.403(b)(1)(v) and (d). 

Note: The reversal of growth in the use of 

brokered deposits occurring between 2009 

and 2012 is likely the joint result of the 

dramatic decline in interest rates occurring 

over that period, coupled with significant 

new restrictions on the use of brokered 

deposits by banks classified as adequately 

and undercapitalized. 

At the end of the third quarter of 

2018, insured brokered deposits made 

up more than 82.5 percent of total 

brokered deposits at all banks. Insured 

brokered deposits as a percent of all 

brokered deposits was highest at banks 

with assets of $50 billion or less. In 

aggregate, insured brokered deposits 

made up 93.7 percent of total brokered 

deposits at banks with assets between 

$1–10 billion, as compared to 79.5 

percent at banks with assets greater than 

$50 billion. (See Chart 4.) 

Section 29 of the Federal Deposit 

Insurance Act (FDI Act) sets forth 

restrictions on the acceptance of 

brokered deposits that also appear in the 

FDIC’s regulations.62 Under Section 29, 

banks are restricted from accepting, 

renewing, or rolling over brokered 

deposits if they are less than well 

capitalized. This restriction may be 

waived for adequately capitalized 

banks. Undercapitalized institutions are 

not allowed to receive new brokered 

deposits and must follow an FDICapproved plan to remove them from 

their books over time. After rising to a 

peak in mid-2009, the use of brokered 

deposits as a share of domestic deposits 

declined for both adequately capitalized 

banks and well capitalized banks. As of 

September 30, 2018, of the 5,477 

insured depository institutions, 99.6 

percent were well capitalized, while 0.2 

percent were rated as adequately 

capitalized. Of those rated as adequately 

capitalized, roughly half held brokered 

deposits. (See Chart 5.) 63


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64The largest concentrations of brokered deposits 

can be characterized as 3 types of deposits: 1) 

Master Certificates of Deposits; 2) sweep deposits 

that are viewed as brokered; and 3) reciprocal 

deposits. Listing service deposits are also discussed 

below, but typically, are not reported as brokered. 

Master Certificates of Deposits are held on the 

books of the issuing bank in the name of a 

subsidiary of Depository Trust Corporation (DTC) as 

custodian for deposit brokers who are often broker 

dealers. These broker dealers, in turn, issue retail 

CDs, typically in denominations of $1,000, under 

the Master Certificate of Deposit to their retail 

clients. 

65Banks that used reciprocal deposits are not 

included in Non-DTC CD Brokered Deposits unless 

they also held other non-DTC CD brokered deposits. 

While all reciprocal deposits were brokered 

deposits between 2007 and 2017, since May 24, 

2018, a significant portion of reciprocal deposits are 

excepted from brokered deposits. 

Brokered Deposits during the 2007–2017 

Financial Crisis 

During the financial crisis and the 

years that followed, from the beginning 

of 2007 through the end of 2017, the 

Deposit Insurance Fund (DIF) incurred 

$74.4 billion in losses as of December 

31, 2016. During this period, excluding 

Washington Mutual, 530 banks failed 

and were placed in FDIC receivership. 

Typically, as institutions get closer to 

failure, their capital level declines and 

they are no longer able to accept, renew, 

or roll over brokered deposits, so levels 

of brokered deposits at failure are 

usually low. Nevertheless, of the 530 

failed banks, twelve, approximately 2.3 

percent, held a majority (50% or greater) 

as brokered deposits; 280 or 

approximately 52.8 percent, held less 

than 1% of their total deposits as 

brokered deposits.64 (See Chart 6.) 

CHART 6 

Brokered Deposits at 530 Failed Institutions, 2007–2017 

Brokered deposits as % of total deposits 

Number failed 

institutions 

w/DTC-titled 

brokered CDs 

% of 

Institutions 

Number failed 

institutions 

w/non-DTC 

titled 

brokered 

deposits 65

% of 

institutions 

Number failed 

institutions 

w/internet 

deposits 

90–100 ................................................................................. 1 0.19 0 0.00 1 

80–89 ................................................................................... 2 0.38 0 0.00 1 

70–79 ................................................................................... 3 0.57 0 0.00 2 

60–69 ................................................................................... 0 0.00 0 0.00 8 

50–59 ................................................................................... 6 1.13 1 0.19 8 

40–49 ................................................................................... 8 1.51 1 0.19 16 

30–39 ................................................................................... 17 3.21 0 0.00 31 

20–29 ................................................................................... 30 5.66 3 0.57 46 

10–19 ................................................................................... 53 10.00 20 3.77 57 

5–9 ....................................................................................... 56 10.57 33 6.23 47 

1–4 ....................................................................................... 74 13.96 77 14.53 55 

0–1 ....................................................................................... 8 1.51 184 34.72 27 

0 ........................................................................................... 272 51.32 211 39.81 231 


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66For the specific criteria to determine when a 

listing service qualifies as a deposit broker see 

Advisory Opinion No. 90–24 (June 12, 1990). 

Advisory Opinion No. 92–50 (July 24, 1992). The 

criteria were subsequently updated in Advisory 

Opinion No. 02–04 (November 13, 2002) and 

Advisory Opinion No. 04–04 (July 28, 2004). 

Assuming these criteria are satisfied, the FDIC takes 

the position that a company is not ‘‘facilitating the 

placement of deposits,’’ and is therefore not a 

deposit broker, even if the company provides a 

platform for the execution of trades. Consequently, 

the deposits themselves are not classified as 

brokered deposits. 

Reciprocal Deposits 

A reciprocal deposit is an 

arrangement based upon a network of 

banks that place funds at other 

participating banks in order for 

depositors to receive insurance coverage 

for the entire amount of their deposits. 

In these arrangements, institutions 

within the network are both sending 

and receiving identical amounts of 

deposits simultaneously. As a result of 

this arrangement, the institutions 

themselves (along with the network 

sponsors) are ‘‘in the business of placing 

deposits, or facilitating the placement of 

deposits, of third parties with insured 

depository institutions,’’ and the 

involvement of deposit brokers within 

the reciprocal network means the 

deposits are brokered deposits. Since 

banks first reported reciprocal deposits 

on the Call Report in June 2009, 

reciprocal deposits as a share of total 

brokered deposits increased greatly, 

primarily among small banks. For banks 

with assets less than $1 billion, 

reciprocal deposits as a percent of total 

brokered deposits rose from 16.4 

percent on June 30, 2009, to a peak of 

33.7 percent on March 31, 2018. 

The Economic Growth, Regulatory 

Reform, and Consumer Protection Act, 

enacted on May 24, 2018, allows certain 

banks to except a limited amount of 

reciprocal deposits from brokered 

deposits. The immediate result of this 

Act has been to dramatically reduce the 

percent of reciprocal deposits that are 

classified as brokered deposits. For 

example, for banks with assets less than 

$1 billion, reciprocal deposits as a share 

of brokered deposits declined from 33.7 

percent on March 31, 2018, to 11.5 

percent on September 30, 2018. (See 

Chart 7.) 

For the largest banks, those with 

assets greater than $50 billion, 

reciprocal deposits as a share of total 

brokered deposits has remained 

relatively low, accounting for 0.1 

percent of total brokered deposits as of 

June 30, 2018. 

Listing Services 

A ‘‘listing service’’ is a company that 

compiles information about the interest 

rates offered by banks on deposit 

products, especially CDs. A particular 

company can be a ‘‘listing service’’ 

(compiling information about deposits) 

as well as a ‘‘deposit broker’’ 

(facilitating the placement of deposits). 

In recognition of this possibility, the 

FDIC has set forth specific criteria to 

determine when a listing service 

qualifies as a deposit broker.66

The FDIC began collecting data on 

non-brokered, or ‘‘passive,’’ listing 

service deposits in the first quarter of 

2011. As of September 30, 2018, a total 

of 1,369 banks reported a positive 

balance for non-brokered listing service 

deposits. In aggregate, these banks held 

approximately $69.6 billion in listing 

service deposits, which represented 0.6 

percent of total domestic deposits. (See 

Chart 8.) 

Listing service deposits made up a 

higher share of domestic deposits at 

smaller banks. On average from 2011 to 

the third quarter of 2018, non-brokered 

listing service deposits represented 1.3 

percent of domestic deposits at banks 

with less than $10 billion in total assets, 

compared to 0.9 percent of domestic 

deposits at banks with $10 billion to $50 

billion in total assets. (See Chart 8.) 


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Banks that are less than well 

capitalized are subject to restrictions on 

accepting, renewing, or rolling over 

brokered deposits, and historically some 

of these banks have turned to listing 

service deposits as an alternate source of 

founding. (See Chart 9.) 

Listing service deposits, however, 

may only provide funding to less than 

well capitalized banks to the extent that 

such a bank can offer rates high enough 

to attract deposits. A low interest rate 

environment, such as the one during 

and after the financial crisis, enabled 

less than well-capitalized banks to list 

high rate deposits and attracts funding. 

As interest rates have been rising in 

recent years, these banks are less likely 

to be able to use listing service deposits 

as an alternate source of funding to 

brokered deposits. From 2010 through 

most of 2015, rates were low enough 


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67Thrift institutions refer to those with institution 

classes of Stock and Mutual Savings Banks, Savings 

Banks and Savings and Loans, and State Stock 

Savings and Loans. 

68We use non-overlapping three year intervals. 

For example, 1987 Call Report data is used to 

predict banks failures that occurring in 1988, 1989, 

and 1990; 1990 Call report data is used to predict 

bank failures in 1991, 1992, and 1993. This timing 

pattern is continued through the end of the sample. 

69To reflect a change in insured deposits limit, 

large time deposits are time deposits over $100,000 

up to December 2009. Starting in March 2010, large 

time deposits refer to time deposits over $250,000. 

Because the last year-end Call Reports data used is 

2017, the core deposit variable reflects the 

prevailing definition through 2017. 

70For example, when Call Report and CAMELS 

ratings data from December 1987 are used to predict 

failures in 1988, 1989, and 1990, the time fixed 

effect coefficient measures the unconditional 

probability of failure for 1988, 1989, and 1990. 

71The loss rate data for more recent bank failures 

is updated through 2017. 

72There are some banks in the sample that have 

not filed Call Reports or TFRs on the quarter prior 

to its failure. For those banks, we use Call Reports 

as of two quarters prior to failure. 

that weekly average rates on 1-year CDs 

fell below the FDIC rate cap. Thus, for 

most banks during that time, the FDIC 

rate cap was not a binding constraint in 

attracting funding and banks were more 

likely to be able to offer high rates via 

listing services to attract deposits. Since 

2016, average market rates have 

exceeded the FDIC rate cap. 

Appendix 2 

Statistical Analysis 

The analysis summarized in this 

appendix uses data from FDIC’s Failure 

Transaction Database, Call Reports/ 

TFRs, and supervisory CAMELS ratings. 

Failure Probability Models 

The sample used for analysis includes 

banks and thrifts that failed between 

1988 and 2017. These banks were 

insured by the Bank Insurance Fund 

(BIF), Savings Association Insurance 

Fund (SAIF), and DIF. The data exclude 

thrifts resolved by FSLIC or the 

Resolution Trust Corporation (RTC). It is 

well documented that FHLBB 

supervised thrifts (insured by FSLIC) 

received regulatory forbearance and 

were allowed to operate with lower net 

worth and were closed under 

procedures that differ significantly from 

the 1991 FDICIA prompt corrective 

action rules that apply over much of the 

sample period. Moreover, the analysis 

excludes any bank or thrift that received 

open bank assistance. The sample 

includes 1,403 failures which consist of 

1,267 bank failures between 1988 and 

2017 and 136 thrift failures between 

1989 and 2017.67 In the remaining 

sections, ‘‘banks’’ is used to refer to both 

banks and thrifts. 

The failure prediction models have a 

three-year failure prediction horizon. 

The models use bank data at year-end to 

predict the probability of the bank 

failing in the next three years. The 

models use year-end Call Reports from 

1987 to 2014 to predict bank failures 

from 1988 to 2017.68 The models are 

estimated as a pooled time-series cross 

section. The standard errors are 

clustered at the bank level. 

Bank failures are modeled as a 

function of banks’ income statement and 

balance sheet information, supervisory 

composite CAMELS ratings, and time 

fixed effects to capture differences in 

economy-wide unconditional average 

bank default rates. The model uses the 

total equity-to-assets ratio rather than 

the Tier 1 capital ratio because the Tier 

1 capital ratio was not used in the 

1980s. Core deposits are defined as: 

total domestic deposits net of large time 

deposits 69 and fully insured brokered 

deposits. 

A bank’s nonperforming loans and 

other real estate owned are used to 

measure a bank’s asset quality. 

Nonperforming loans are defined as a 

sum of loans past due 90+ days and 

non-accruing loans. We also include a 

bank’s concentration in CRE, C&D, C&I, 

and consumer loans. A bank’s asset 

growth rate measures percent change in 

bank’s total assets from one year ago. 

Bank earnings are measured as a 

ratio—income before taxes to assets. A 

bank’s interest expense is also included 

as an explanatory variable. A bank’s 

composite CAMELS ratings are 

represented as separate binary (0,1) 

variables to allow for non-linear ratings 

effects on the probability of default. 

‘‘CAMELS 3’’ is a binary variable that 

indicates a bank’s composite CAMELS 

rating is 3. ‘‘CAMELS 4 or 5’’ is a binary 

variable that indicates a bank’s 

composite CAMELS rating is 4 or 5. All 

financial variables are normalized by 

total assets with the exception of 

CAMELS 3, CAMELS 4 or 5, and Asset 

Growth. 

Time fixed effects are included to 

capture any difference in the 

unconditional probability of bank 

failure across years. The unconditional 

likelihood of a bank failing differs by 

period in part because macroeconomic 

conditions and regulation vary. In the 

probability of failure models, time fixed 

effect coefficients estimate the 

unconditional failure probability for 3- 

year periods.70

Loss Rate Models 

Failed bank loss rates are computed as 

a ratio of the most recent estimate of the 

failure expense and the bank’s total 

assets as of the quarter before its failure. 

For the most part, the loss rates for 

recent bank failures are estimates and 

not final costs as a receivership process 

can take many years to conclude. The 

sample used for the analysis includes 

banks that failed between April 13, 1984 

and December 15, 2017.71 The banks in 

the sample were insured by the BIF, 

SAIF, and DIF. The analysis excludes 

any banks that received open bank 

assistance. 

Failed bank loss rates are modeled as 

a function of the income and balance 

sheet characteristics of the failed bank. 

The model explains loss rates using a 

failed bank’s equity, nonperforming 

loans, other real estate owned, core 

deposits, brokered deposits, income 

earned but not collected, and total loans 

to executives as explanatory variables. 

These variables are scaled by a bank’s 

asset size. The model allows loss rates 

to differ for small (asset size $500 

million or less), medium (asset size 

between $500 million to $1 billion), and 

large (asset size $1 billion and higher) 

banks. Call Report/TFR data are from 

the last quarter before the bank failure 

date.72

Reciprocal Deposit Data 

Banks began reporting their reciprocal 

brokered deposit funds separated from 

non-reciprocal brokered deposits 

beginning in June 2009. In analyzing the 

effects of reciprocal deposits, we use 

Call Reports/TFRs and CAMELS rating 

data from June 2009 through December 

2017. The analysis examines reciprocal 

deposit data through December 2017. 

During this time period, all reciprocal 

deposits were considered brokered 

deposits. The Economic Growth, 

Regulatory Reform, and Consumer 

Protection Act, which was signed into 

law on May 24, 2018, allows certain 

banks to except a limited amount of 

reciprocal deposits from brokered 

deposits. 

Listing Service Deposit Data 

Banks began reporting deposits 

obtained through the use of deposit 

listing services that are not brokered 

deposits beginning in March 2011. In 

analyzing the effects of reciprocal 

deposits, we use Call Reports and 

CAMELS rating data from March 2011 

through December 2017. 

Estimation Results 

Core Deposits and Bank Failure 

Probability 

In this section, we examine the 

relationship between core deposits and 

bank failure probabilities. Core deposits 

provide a bank with a stable and 


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73The regression includes time fixed effects, but 

the coefficient estimates are not reported in Table 

1. 

relatively cost effective source of funds. 

Core deposits, moreover, are an 

important component of customer-bank 

relationships. Many core depositors 

have long-term financial relationships 

with a bank that involve deposits, 

lending, and other financial services 

that generate bank profits. A bank’s core 

deposit base is a measure of the size of 

a bank’s opportunity set for relationship 

lending. Academic studies as well as 

FDIC resolutions experience suggest that 

core deposits are a significant source of 

bank franchise value. 

Table 1 reports the results of a failure 

probability model that includes equity 

and the core deposits to assets ratio as 

predictive variables. The estimated 

coefficient on equity is negative, 

statistically significant, and very large in 

magnitude, suggesting that adequate 

equity buffers are among the most 

important factors lowering a bank’s risk 

of default. The coefficient estimate on 

core deposits is also negative and 

statistically significant. Controlling for 

bank equity, the core deposits ratio is 

negative and statistically significant, 

suggesting that banks with higher core 

deposits have lower failure 

probability.73

TABLE 1—CORE DEPOSITS AND BANK FAILURE PROBABILITIES

Variable Coefficient 

estimates 

Intercept ............................................................................................................................................................................................... ***¥2.331 

[0.000] 

Equity ................................................................................................................................................................................................... ***¥0.284 

[0.000] 

Core deposits ....................................................................................................................................................................................... ***¥0.027 

[0.000] 

Nonperforming loans ........................................................................................................................................................................... *** 0.132 

[0.000] 

Other real estate owned ...................................................................................................................................................................... *** 0.124 

[0.000] 

Income before taxes ............................................................................................................................................................................ ***¥0.145 

[0.000] 

Interest expense .................................................................................................................................................................................. *** 0.172 

[0.000] 

CAMELS rating 3 ................................................................................................................................................................................. *** 0.867 

[0.000] 

CAMELS rating 4 or 5 ......................................................................................................................................................................... *** 1.687 

[0.000] 

Asset growth ........................................................................................................................................................................................ *** 0.012 

[0.000] 

CRE loans ............................................................................................................................................................................................ *** 0.019 

[0.000] 

C&D loans ............................................................................................................................................................................................ *** 0.061 

[0.000] 

C&I loans ............................................................................................................................................................................................. *** 0.024 

[0.000] 

Consumer loans ................................................................................................................................................................................... *** 0.013 

[0.000] 

Pseudo R2 ........................................................................................................................................................................................... 0.515 

Wald Chi2 ............................................................................................................................................................................................ *** 3,224 

N .......................................................................................................................................................................................................... 98,237 

Notes: 

1 Uses December Call Report data from 1987, 1990, 1993, 1996, 1999, 2002, 2005, 2008, 2011, and 2014 to predict failures from 1988–2017. 2 Core deposits are defined as domestic deposits minus time deposits over the insurance limit and fully insured brokered deposits. 3All financial variables are normalized by total assets with the exception of CAMELS rating 3, CAMELS rating 4 or 5, and Asset Growth. CAMELS rating 3 and CAMELS rating 4 or 5 are dummy variables indicating that the institution is CAMELS 3-rated and the institution is CAMELS 4 

or 5-rated, respectively. Asset Growth is the institution’s one-year asset growth rate. 4Year fixed effects are included but not reported. 

5Standard errors are clustered by bank. 

*** Indicates statistical significance at the 1 percent level. ** Indicates statistical significance at the 5 percent level. * Indicates statistical significance at the 10 percent level. P-values are reported in brackets. 

Brokered Deposits and the Probability of 

Bank Failure 

In this section, we examine the 

relationship between brokered deposits 

and bank failure probability and loss 

rates to the insurance fund. To 

summarize the results in this section, 

we find that brokered deposit use is 

associated with higher probability of 

bank failure and higher insurance fund 

loss rates. Brokered deposits may 

elevate a bank’s risk profile in part 

because brokered deposits are 

frequently used as a substitute for bank 

core deposits and, less frequently, for 

equity, and so from the FDIC’s 

perspective, banks that use brokered 

deposits operate with a higher risk 

liability structure relative to banks that 

do not use brokered deposits. 

Bank failure probability model 

estimates are reported in Table 2. 

Column (1) of Table 2 reports that 

brokered deposits have a positive, 

statistically significant effect on a bank’s 

estimated probability of failure over a 

three-year horizon. In this logistic 

regression specification, the income 


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74The omitted period, the period without an 

estimate of time fixed effect, is 1988–1990 and so 

time fixed effects estimates the unconditional 

probability of a 3 year period relative to the 

unconditional probability for 1988–1990. The time 

fixed effect coefficients estimates are negative and 

statistically significant indicating that the 

unconditional probability of failure was lower in 

the periods 1991–1993, 1994–1996, 1997–1999, 

2000–2002, 2003–2005, 2006–2008, 2012–2014 and 

2015–2017 (relative to 1988–1990). The time fixed 

effect coefficient for 2009–2011 is negative but 

statistically insignificant indicating no average 

default rate difference relative to 1988–1990. 

before tax ratio is negatively correlated 

with bank failures, implying that banks 

with higher earnings ratios are less 

likely to fail. Banks with higher 

nonperforming loan and other real 

estate owned ratios are more likely to 

fail. All of these effects are statistically 

significant at the 1 percent level. There 

is a positive and statistically significant 

relationship between lagged asset 

growth rate and bank failures. The 

estimated coefficient for the growth rate 

is positive and statistically significant 

suggesting that, other things equal, 

banks experiencing rapid growth are 

more likely to fail within the next 3 

years. Estimates also suggest that CRE, 

C&D, C&I, and consumer loan 

concentrations increase failure 

probability estimates. Banks with a 

composite CAMELS rating of 3 and 

those with a rating of 4 or 5, are more 

likely to fail compared to CAMELS 1 or 

2 rated banks. This model specification 

shows a statistically significant 

relationship between interest expense 

and bank failures. The model also 

includes time fixed effects, but these 

estimates are not reported.74

In the estimates reported in Table 2, 

Column (1), brokered deposits are the 

only funding variable included in the 

regression (equity and core deposits are 

excluded from the regression). In this 

specification, brokered deposits are 

clearly associated with an increase in 

bank failure probability, but the reason 

for the increase is unclear. When a bank 

increases its brokered deposit-to-asset 

ratio, there must be an offsetting change 

in at least one of the bank’s other 

funding sources. That is, the bank must 

change its equity-to-asset ratio, its core 

deposit-to-asset ratio, or its other noncore deposits and other liabilities to 

asset ratio to offset the increase in its 

brokered deposit ratio. This implicit 

shift in a bank’s liability structure is one 

possible source of the increase in bank 

fragility that is identified by the positive 

coefficient on brokered deposits 

reported in Column (1). For example, if 

the bank’s equity-to-asset ratio declines 

to offset an increase in a bank’s brokered 

deposit ratio, then the bank is using 

brokered deposits to increase its 

leverage which would increase its 

probability of failure. We investigate 

these potential capital structure effects 

on bank failure probability using a 

series of regressions reported in 

Columns (2) and (3) of Table 2. 

To control for bank leverage, we 

include a bank’s equity-to-asset ratio in 

the failure model. The results are 

reported in Table 2, Column (2). By 

controlling for the equity ratio, the 

estimated coefficient on brokered 

deposits measures the effect of 

increasing a bank’s reliance on brokered 

deposits and decreasing its reliance on 

other liabilities (such as core deposits, 

federal funds purchased, and FHLB 

advances), holding a bank’s equity-toasset ratio unchanged. The negative and 

statistically significant coefficient 

estimate on the equity ratio implies that 

greater equity lowers a bank’s 

probability of default. The positive and 

statistically significant coefficient on the 

brokered deposits ratio (unchanged from 

previous) suggests that, holding bank 

leverage constant, a higher brokered 

deposits ratio (with decreased reliance 

on other funding sources) 

unambiguously increases the probability 

that a bank will fail in the subsequent 

three years. These results show that the 

use of brokered deposits increases a 

bank’s failure probability even when 

they are not used as a substitute for 

bank equity. 

Controlling for a bank’s leverage ratio, 

the use of brokered deposits raises the 

estimated probability of bank failure. 

Why? As we have demonstrated in the 

prior section, core deposits are an 

important category of bank liabilities. 

Core deposits are associated with a 

lower probability of bank failure. Other 

things held constant, should a bank 

with a large core deposit franchise 

become distressed, long-standing FDIC 

resolution experience suggests that it is 

much more likely to be recapitalized 

through a purchase or a merger and not 

through an FDIC resolution. Thus, one 

possible avenue through which failure 

probability might be affected by the use 

of brokered deposits is if brokered 

deposits are used as a substitute for core 

deposit funding. 

In Table 2, Column (3), we estimate 

the effects of brokered deposits on the 

probability of bank failure holding 

constant a bank’s core deposit ratio. In 

this specification, core deposits are 

negative and statistically significant 

whereas brokered deposits are positive 

and statistically significant. The 

interpretation is that, holding constant 

the asset risk characteristics of a bank, 

provided a bank’s share of funding from 

core deposits remains unchanged, on 

average, the use of brokered deposits 

increases a bank’s probability of failure. 

In Table 2, Column (4), we include 

three bank funding categories as 

controls: brokered deposits, equity, and 

core deposits. The coefficients of equity 

and core deposits are both negative and 

statistically significant, indicating that 

higher equity and core deposit funding 

shares both reduce the probability of 

bank failure. In this specification, the 

estimated coefficient on the brokered 

deposits ratio measures the effect of 

increasing brokered deposits, holding 

constant equity and core deposits, and 

reducing reliance on other bank 

liabilities. The estimated coefficient on 

brokered deposits is not statistically 

significant. These results suggest that 

brokered deposits can be substituted for 

other bank liabilities without any 

statistically measureable effect on a 

bank’s failure probability, provided that 

a bank’s share of equity and core deposit 

funding and its asset risk characteristics 

remain unchanged. 

TABLE 2—BROKERED DEPOSITS AND FAILURE PROBABILITY OVER A THREE-YEAR HORIZON

Variable Coefficient 

estimates 

Coefficient 

estimates 

Coefficient 

estimates 

Coefficient 

estimates 

(1) (2) (3) (4) 

Intercept ........................................................................................................... ***¥6.447 ***¥4.674 ***¥5.119 ***¥2.312 

[0.000] [0.000] [0.000] [0.000] 

Brokered deposits ............................................................................................ *** 0.026 *** 0.022 *** 0.013 ¥0.001 

[0.000] [0.000] [0.014] [0.790] 

Equity ............................................................................................................... ........................ ***¥0.273 ........................ ***¥0.284 

........................ [0.000] ........................ [0.000] 

Core deposits ................................................................................................... ........................ ........................ ***¥0.016 ***¥0.027 


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TABLE 2—BROKERED DEPOSITS AND FAILURE PROBABILITY OVER A THREE-YEAR HORIZON—Continued 

Variable Coefficient 

estimates 

Coefficient 

estimates 

Coefficient 

estimates 

Coefficient 

estimates 

(1) (2) (3) (4) 

........................ ........................ [0.000] [0.000] 

Nonperforming loans ....................................................................................... *** 0.164 *** 0.138 *** 0.164 *** 0.132 

[0.000] [0.000] [0.000] [0.000] 

Other real estate owned .................................................................................. *** 0.142 *** 0.117 *** 0.147 *** 0.124 

[0.000] [0.000] [0.000] [0.000] 

Income before taxes ........................................................................................ ***¥0.148 ***¥0.149 ***¥0.140 ***¥0.145 

[0.000] [0.000] [0.000] [0.000] 

Interest expense .............................................................................................. *** 0.114 *** 0.199 *** 0.097 *** 0.172 

[0.000] [0.000] [0.000] [0.000] 

CAMELS rating 3 ............................................................................................. *** 0.992 *** 0.862 *** 1.002 *** 0.867 

[0.000] [0.000] [0.000] [0.000] 

CAMELS rating 4 or 5 ..................................................................................... *** 2.280 *** 1.596 *** 2.347 *** 1.688 

[0.000] [0.000] [0.000] [0.000] 

Asset growth .................................................................................................... *** 0.009 *** 0.014 *** 0.007 *** 0.012 

[0.000] [0.000] [0.000] [0.000] 

CRE loans ........................................................................................................ *** 0.022 *** 0.020 *** 0.021 *** 0.019 

[0.000] [0.000] [0.000] [0.000] 

C&D loans ........................................................................................................ *** 0.065 *** 0.066 *** 0.062 *** 0.061 

[0.000] [0.000] [0.000] [0.000] 

C&I loans ......................................................................................................... *** 0.031 *** 0.030 *** 0.028 *** 0.024 

[0.000] [0.000] [0.000] [0.000] 

Consumer loans ............................................................................................... *** 0.021 *** 0.015 *** 0.018 *** 0.013 

[0.000] [0.000] [0.000] [0.000] 

Pseudo R2 ........................................................................................................ 0.471 0.509 0.473 0.515

Wald Chi2 ........................................................................................................ *** 3,678 *** 3,193 *** 3,763 *** 3,228 

No. of observations .......................................................................................... 98,237 98,237 98,237 98,237 

Notes: 

1 Uses December Call Report data from 1987, 1990, 1993, 1996, 1999, 2002, 2005, 2008, 2011, and 2014 to predict failures from 1988–2017. 2 Core deposits is defined as domestic deposits minus time deposits over the insurance limit and fully insured brokered deposits.

3All financial variables are normalized by total assets with the exception of CAMELS rating 3, CAMELS rating 4 or 5, and Asset Growth. CAMELS rating 3 and CAMELS rating 4 or 5 are dummy variables indicating that the institution is CAMELS 3-rated and the institution is CAMELS 4 

or 5-rated, respectively. Asset Growth is the institution’s one-year asset growth rate. 4Year fixed effects are included but not reported. 

5Standard errors are clustered by bank. 

*** Indicates statistical significance at the 1 percent level. ** Indicates statistical significance at the 5 percent level. * Indicates statistical significance at the 10 percent level. P-values are reported in brackets. 

To summarize, these series of 

regression model estimates show that 

the use of brokered deposits is 

associated with a higher probability of 

bank failure. The higher probability 

owes to a core deposit or equity effect: 

When banks substitute brokered 

deposits for core deposits or equity, this 

can increase their probability of failure. 

It is also possible that the use of 

brokered deposits is a general indicator 

of a higher risk appetite on the part of 

bank management which, may be 

reflected in the riskiness of the assets 

that a bank purchases. We turn to this 

issue in the next section. 

Brokered Deposits and Bank Asset 

Growth and Quality 

To determine whether the use of 

brokered deposits may also be a general 

indicator of a higher risk appetite on the 

part of bank management, as reflected in 

the bank’s asset growth or 

nonperforming loans, the FDIC 

examined the relationship between 

brokered deposits and asset growth, and 

between brokered deposits and 

nonperforming loans. 

To assess whether the use of brokered 

deposits helps to explain the variation 

in observed bank growth rates, we 

estimate alternative models in which a 

bank’s 3-year growth rate is in part 

determined by its 3-year average use of 

brokered deposits. Overall, the 

regression analysis suggests that banks 

using brokered deposits often exhibit 

higher 3-year growth rates compared to 

banks that do not use brokered deposits. 

This positive relationship is likely to be 

the result of a complex series of choices 

made by bank management that drive 

both a bank’s growth rate and its use of 

brokered deposits. The underlying 

structural choice models are 

undoubtedly much more complex than 

the models estimated in this analysis. 

For example, we would expect that 

aggregate and local market lending 

conditions, interest rates and 

employment all to be factors included in 

the simultaneous determination of a 

bank’s growth rate and brokered deposit 

usage. 

To analyze the relationship between 

brokered deposits and asset quality, we 

estimated various models that explain 

the level of non-performing bank loans 

at the end of three years using 

macroeconomic controls and bankspecific measures of risk, including 

variables that measure their use of 

brokered deposit funding. 

Nonperforming loans are defined as a 

sum of loans past due 90+ days, nonaccruing loans, and other real estate 

owned. Banks that are willing to 

undertake riskier funding structures 

may also be willing to invest in higher 

risk loan portfolios. If this is true, banks 

that fund themselves with brokered 

deposits would also tend to be banks 

with higher non-performing loans. 

The results of the regression analysis 

include an estimated coefficient for the 

brokered deposits to assets ratio that is 

positive and statistically significant, 

implying that an increase in the 

brokered deposit ratio is associated with 

an increase in the nonperforming loans 

ratio three years into the future. In 

contrast, higher core deposits are 


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75For example, legislative changes such as the 

cross guarantee provision in FIRREA of 1989 and 

the least cost resolution requirement in FDICIA of 

1991. Unconditional loss rates of banks that failed 

in 1998, 2007, 2008, and 2009 are higher compared 

to loss rates in 1984 (the base year) with statistical 

significance. Compared to loss rates in 1984, loss 

rates are substantially lower in 1985, 1990, 1991, 

1992, 1993, 1994, 2000, and 2004 with statistical 

significance. 

associated with more conservative 

lending practices. Banks with high 

reserves, liquid assets, and consumer 

loans tend to have a lower 

nonperforming loan-to-asset ratio three 

years later. In contrast, banks with high 

interest expenses, income before taxes, 

C&I loans, C&D loans, and CRE loans are 

more likely to have a higher 

nonperforming loan ratio three years 

later. An increase in bank size, on 

average, is associated with a lower 

nonperforming loan ratio. 

The FDIC also tested an alternative 

definition of a nonperforming loans 

ratio (the sum of loans past due 90+ 

days and non-accruing loans), and the 

results are qualitatively similar to those 

in the initial regression analysis. 

Brokered deposits continue to be 

positively correlated with 

nonperforming loan ratios. 

Loss Rate Models 

In this section, we investigate whether 

banks’ use of brokered deposit funding 

is associated with higher DIF loss rates 

when a bank fails. Banks with heavy 

reliance on brokered deposits may have 

a low franchise value because they lack 

a large core deposit customer base. In 

addition, banks that fund themselves 

with brokered deposits tend to have 

higher non-performing loans which may 

contribute to higher DIF losses. 

Table 3 reports the results of the loss 

rate regression analysis. Column (1) of 

Table 3 suggests that higher 

nonperforming loans, other real estate 

owned, income earned but not 

collected, loans to executives to asset 

ratios are associated with higher loss 

rates. Banks with higher C&D, C&I, and 

consumer loans also tend to have higher 

loss rates. Medium-sized (asset size 

between $500 million to $1 billion) and 

large failed banks (asset size $1 billion 

and higher) tend to have lower loss rates 

compared to small banks (asset size 

$500 million or less). The year fixedeffects (not reported) are added to 

capture any difference in unconditional 

loss rates across years. These fixed 

effects capture loss rate differences that 

may be driven by year-to-year 

differences in the strength of the 

economy or supervision and 

regulation.75

In the failure loss rate model 

specification reported in Table 3, 

Column (1), only brokered deposits are 

included as a funding variable. The 

estimated coefficient for brokered 

deposits measures the effect of an 

increase in brokered deposits and an 

offsetting reduction in other funding 

sources on the loss rate. The positive 

and statistically significant coefficient 

on brokered deposits in Column (1) 

suggests that an increase in a bank’s 

reliance on brokered deposits (and an 

offsetting decrease in other funds either 

equity or other liabilities) increases the 

DIF loss rate. 

In Table 3 Column (2), the failed 

bank’s equity ratio is also included as an 

explanatory variable. The positive and 

statistically significant coefficient on 

brokered deposits suggests that 

increasing reliance on brokered 

deposits, holding bank equity constant 

and reducing other liabilities (such as 

core deposits, fed funds purchased, 

FHLB advances), there is an increase in 

the DIF loss rate. The negative and 

statistically significant coefficient on the 

equity ratio suggests that increasing 

equity and decreasing a bank’s reliance 

on other liabilities with no change in 

brokered deposits reduces the loss rate. 

In Table 3, Column (3), the failed 

bank’s core deposit ratio and brokered 

deposit ratio are included as 

explanatory variables. The positive and 

statistically significant coefficient on 

brokered deposits suggests that, 

increasing reliance on brokered 

deposits, holding core deposits constant 

and reducing other liabilities (such as 

federal funds purchased, FHLB 

advances) and possibly equity, there is 

an increase in the DIF loss rate. The 

negative and statistically significant 

coefficient on the core deposit ratio 

suggests that increasing core deposits 

and decreasing a bank’s reliance on 

other liabilities while holding brokered 

deposits constant reduces the DIF loss 

rate. 

The model specification reported in 

Table 3, Column (4) includes brokered 

deposits, equity, and core deposits as 

funding measures. In this specification, 

the estimated coefficient on brokered 

deposits is negative and statistically 

insignificant suggesting that, other 

control variables held constant, when 

equity and core deposits are unchanged, 

increasing brokered deposits and 

decreasing other bank liabilities has no 

statistically measurable effect on loss 

rates. In contrast, replacing other 

liabilities with equity or core deposits 

with no change in brokered deposits 

decreases a bank’s failure loss rate. 

To summarize these results, we find 

that the use of brokered deposits results 

in higher loss rates to the DIF. These 

higher losses can be linked to two 

causes, a leverage effect and a core 

deposit effect. The leverage effect arises 

because brokered deposits are often 

used as a substitute for bank equity and 

so when brokered deposits are in use 

there is less capital to cushion the DIF’s 

loss. The core deposit effect is the 

substitution of brokered for core 

deposits. This lowers bank franchise 

value which also increases the DIF loss 

rate. 

TABLE 3—BANK FAILURE LOSS RATE MODELS

Variable Coefficient 

estimates 

Coefficient 

estimates 

Coefficient 

estimates 

Coefficient 

estimates 

(1) (2) (3) (4) 

Intercept ........................................................................................................... *** 6.350 *** 9.324 *** 9.680 *** 17.465 

[0.000] [0.000] [0.000] [0.000] 

Brokered deposits ............................................................................................ *** 0.104 *** 0.082 * 0.063 ¥0.015 

[0.000] [0.003] [0.061] [0.665] 

Equity ............................................................................................................... ........................ ***¥0.470 ........................ ***¥0.550 

........................ [0.000] ........................ [0.000] 

Core deposits ................................................................................................... ........................ ........................ **¥0.044 ***¥0.102 

........................ ........................ [0.030] [0.000] 

Nonperforming loans ....................................................................................... *** 0.431 *** 0.327 *** 0.441 *** 0.333 

[0.000] [0.000] [0.000] [0.000] 

Other real estate owned .................................................................................. *** 0.835 *** 0.738 *** 0.845 *** 0.746 


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76Banks report a total for brokered deposits and 

also report the amount of this total that are 

reciprocal deposits. We exclude observations when 

a bank reports a positive reciprocal brokered 

deposit value but reports a zero value for total 

brokered deposits. We also exclude from the sample 

banks that report higher values for reciprocal 

brokered deposits than for total brokered deposits. 

77Only 1,348 banks reported positive reciprocal 

brokered deposits out of 3,015 banks that report 

positive brokered deposits. 

TABLE 3—BANK FAILURE LOSS RATE MODELS—Continued 

Variable Coefficient 

estimates 

Coefficient 

estimates 

Coefficient 

estimates 

Coefficient 

estimates 

(1) (2) (3) (4) 

[0.000] [0.000] [0.000] [0.000] 

Income earned but not collected ..................................................................... *** 3.620 *** 3.888 *** 3.690 *** 4.095 

[0.000] [0.000] [0.000] [0.000] 

Loan to executive officers ................................................................................ *** 0.334 ** 0.302 ** 0.323 ** 0.272 

[0.008] [0.015] [0.010] [0.027] 

Bank size between $500 mil–$1 bil ................................................................. ***¥5.517 ***¥5.118 ***¥5.882 ***¥5.886 

[0.000] [0.000] [0.000] [0.000] 

Bank size >$1 billion ........................................................................................ ***¥9.064 ***¥9.015 ***¥9.567 ***¥10.158 

[0.000] [0.000] [0.000] [0.000] 

CRE loans ........................................................................................................ ¥0.002 ¥0.014 ¥0.001 ¥0.013 

[0.940] [0.650] [0.974] [0.674] 

C&D loans ........................................................................................................ *** 0.140 *** 0.163 *** 0.134 *** 0.151 

[0.001] [0.000] [0.001] [0.000] 

C&I loans ......................................................................................................... *** 0.243 *** 0.216 *** 0.237 *** 0.199 

[0.000] [0.000] [0.000] [0.000] 

Consumer loans ............................................................................................... *** 0.128 *** 0.117 *** 0.125 *** 0.108 

[0.000] [0.000] [0.000] [0.000] 

Adjusted R2 ...................................................................................................... 0.350 0.373 0.351 0.381 

No. of observations .......................................................................................... 1,943 1,943 1,943 1,943 

Notes: 

1Estimates use data from 1984 to 2017 to predict failure loss rates in 1984 to 2017. 

2 Core deposits is defined as domestic deposits minus time deposits over the insurance limit and fully insured brokered deposits.

3All financial variables are normalized by total assets with the exception of Bank size between $500 mil–$1 bil and Bank size >$1billion. Bank 

size between $500 mil–$1 bil is a dummy variable indicating that the institution’s asset size is between $500 million and $1 billion. Bank size 

>$1billion is a dummy variable indicating that the institution’s asset size is over $1 billion. 4The regressions include year fixed effects, but not reported. 

*** Indicates statistical significance at the 1 percent level. ** Indicates statistical significance at the 5 percent level. * Indicates statistical significance at the 10 percent level. P-values are reported in brackets. 

Analysis of Reciprocal Deposits 

In this section we use the available 

data to analyze reciprocal deposit use 

patterns and the effects of reciprocal 

deposits on the probability of bank 

failure and DIF loss rates. Banks began 

reporting reciprocal brokered deposit 

funds separately from non-reciprocal 

brokered deposits beginning June 2009. 

This analysis examines reciprocal 

deposit data through December 2017. 

During this time period, all reciprocal 

deposits were considered brokered 

deposits. The Economic Growth, 

Regulatory Reform, and Consumer 

Protection Act, which was signed into 

law on May 24, 2018, allows certain 

banks to except a limited amount of 

reciprocal deposits from brokered 

deposits. 

The data show that while a minority 

of banks use reciprocal deposits, those 

that use this source of funding tend to 

raise a large percentage of their brokered 

deposits using reciprocal deposits. From 

June 2009 through December 2010, the 

use of reciprocal deposits became more 

widespread, but was still uncommon. 

Over this period, on average, the use of 

brokered deposits declined from 

December 2011, then increased starting 

in December 2015. The relative 

importance of reciprocal deposits as a 

component of brokered deposits 

increased from December 2011 to 

December 2013 and has since fallen. 

Table 4 reports the distribution of 

different brokered deposit ratios by Call 

Report date.76 The first panel of Table 

4 reports the distribution of different 

brokered deposit ratios (total brokered, 

reciprocal brokered, and non-reciprocal 

brokered deposits to assets ratios) for 

December 2011. The median values for 

each of these ratios are zero; in 

December 2011, out of 7,366 banks, 

3,015 banks had non-zero brokered 

deposits. 

In December 2011, an average bank’s 

reliance on brokered deposits (2.43%) 

was split between reciprocal brokered 

deposits (0.58%) and non-reciprocal 

brokered deposits (1.85%). Only a very 

small share of banks has a heavy 

reliance on reciprocal brokered 

deposits. The 99th percentile of the 

reciprocal brokered deposit ratio is 

11.61% and the maximum observed 

ratio is 49.55%. 

Rows (4) and (5) of Table 4 report the 

distributions of the ratios of reciprocal 

deposits and non-reciprocal brokered 

deposits to total brokered deposits for 

banks that report positive brokered 

deposits. The median reciprocal to total 

brokered deposits ratio is 0.77 Among 

banks using brokered deposits, on 

average 31.44% of brokered deposits are 

reciprocal deposits. Fourteen percent of 

banks using brokered deposits use only 

reciprocal brokered deposits. 

Rows (6) and (7) of Table 4 report the 

distributions of reciprocal deposits and 

non-reciprocal brokered deposits to total 

brokered deposits ratios for the sample 

of banks that report positive reciprocal 

brokered deposits. The data show that 

while reciprocal brokered deposits are 

not used widely among banks that rely 

on brokered deposits for funding, when 

they are used, they frequently are a 

bank’s primary source of brokered 

funding. 

Comparing data from December 2011 

and December 2017, fewer banks are 

using brokered deposits, but among 

those banks that do, reliance on 

brokered deposits has been increasing. 

The mean total brokered deposits to 

assets ratio in December 2017 was 

2.90% which increased from 2.43% in 

December 2011. The trend for banks’ 

reliance on reciprocal deposits is less 

clear. In December 2011, 1,348 banks 

reported positive reciprocal deposit 


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78We have not investigated why these banks 

stopped using reciprocal deposits. 

balances. This number declined to 1,199 

banks in December 2014, and has 

remained relatively stable, declining 

somewhat to 1,184 by December 2017. 

The average usage of reciprocal deposits 

has increased; the mean reciprocal 

deposits to assets ratio was 0.80% in 

December 2017 compared to 0.58% in 

December 2011. Generally, the share of 

brokered deposits funded by reciprocal 

versus non-reciprocal deposits has 

remained stable. 

TABLE 4—DISTRIBUTION OF DIFFERENT BROKERED DEPOSITS RATIOS BY CALL REPORT DATE

Ratios N Max 99th 95th 90th Med Mean 

December 2011 

(1) ............ Total brokered/assets ........ 7,366 90.83 27.28 12.15 7.30 0.00 2.43 

(2) ............ Reciprocal brokered/assets 7,366 49.55 11.61 3.63 1.29 0.00 0.58 

(3) ............ Non-reciprocal brokered/ 

assets.

7,366 90.83 25.47 9.82 5.40 0.00 1.85 

(4) ............ Reciprocal brokered/total 

brokered.

3,015 100.00 100.00 100.00 100.00 0.00 31.44 

(5) ............ Non-reciprocal brokered/ 

total brokered.

3,015 100.00 100.00 100.00 100.00 100.00 68.56 

(6) ............ Reciprocal brokered/total 

brokered.

1,348 100.00 100.00 100.00 100.00 97.13 70.31 

(7) ............ Non-reciprocal brokered/ 

total brokered.

1,348 99.99 99.70 96.67 90.91 2.87 29.69 

December 2017 

(1) ............ Total brokered/assets ........ 5,678 87.66 29.92 13.69 9.00 0.00 2.90 

(2) ............ Reciprocal brokered/assets 5,678 41.37 13.09 5.52 2.25 0.00 0.80 

(3) ............ Non-reciprocal brokered/ 

assets.

5,678 87.66 25.32 10.27 6.62 0.00 2.10 

(4) ............ Reciprocal brokered/total 

brokered.

2,526 100.00 100.00 100.00 100.00 0.00 31.79 

(5) ............ Non-reciprocal brokered/ 

total brokered.

2,526 100.00 100.00 100.00 100.00 100.00 68.21 

(6) ............ Reciprocal brokered/total 

brokered.

1,184 100.00 100.00 100.00 100.00 86.76 67.81 

(7) ............ Non-reciprocal brokered/ 

total brokered.

1,184 99.99 99.65 96.81 91.86 13.24 32.19 

Reciprocal Deposit Usage at Failed 

Banks 

In this section, we examine the extent 

to which failed banks relied on 

reciprocal brokered deposits. The 

analysis includes banks that failed 

between July 2009 and December 15, 

2017. During this period, 458 banks 

failed. 

Table 5 reports number (percentage in 

parenthesis) of failed banks that 

reported positive reciprocal deposits 

and non-reciprocal brokered deposits on 

their balance sheet prior to their failure. 

In this table, data are analyzed 

according to the Call Report data 

reported a selected number of quarters 

before the bank failure date. Reciprocal 

deposits were first reported on Call 

Reports in June 2009. Hence, we are 

limited to 180 failures, which failed 

between April 2011 and December 2017, 

to have 8 quarters of Call Report data 

with reciprocal deposit information. In 

contrast, there are 458 failures, which 

failed between July 2009 to December 

2017, with 1 quarter of Call Report data 

with reciprocal deposit information. 

The data suggest a number of 

consistent patterns. Column (3) shows 

that somewhere between 60 and 70 

percent of the failed banks used 

brokered deposits for at least six 

quarters before they failed. There is also 

evidence that suggests that some of 

these failed banks stop using brokered 

deposits in the quarter prior to their 

failure. Of these failed banks, roughly 20 

percent used reciprocal deposits for up 

to seven quarters prior to their failure, 

but like brokered deposits, some also 

stopped using reciprocal deposit 

funding the quarter before they failed.78

TABLE 5—BROKERED AND RECIPROCAL DEPOSITS USAGE IN FAILED BANKS

Number of quarters before failure Number of 

observations 

Number of banks 

with positive 

brokered deposits 

reported 

(%) 

Number of banks 

with positive 

non-reciprocal 

brokered deposits 

reported 

(%) 

Number of banks 

with positive 

reciprocal 

brokered deposits 

reported 

(%) 

(1) (2) (3) (4) (5) 

8 ..................................................................................................... 180 122 (67.78) 116 (64.44) 39 (21.67) 

7 ..................................................................................................... 206 140 (67.96) 134 (65.05) 44 (21.36) 

6 ..................................................................................................... 236 165 (69.92) 159 (67.37) 53 (22.46) 

5 ..................................................................................................... 277 196 (70.76) 183 (66.06) 64 (23.10) 


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TABLE 5—BROKERED AND RECIPROCAL DEPOSITS USAGE IN FAILED BANKS—Continued 

Number of quarters before failure Number of 

observations 

Number of banks 

with positive 

brokered deposits 

reported 

(%) 

Number of banks 

with positive 

non-reciprocal 

brokered deposits 

reported 

(%) 

Number of banks 

with positive 

reciprocal 

brokered deposits 

reported 

(%) 

(1) (2) (3) (4) (5) 

4 ..................................................................................................... 322 224 (69.57) 211 (65.53) 67 (20.81) 

3 ..................................................................................................... 363 251 (69.15) 235 (64.74) 64 (17.63) 

2 ..................................................................................................... 408 277 (67.89) 260 (63.73) 70 (17.16) 

1 ..................................................................................................... 458 295 (64.41) 283 (61.79) 63 (13.76) 

Notes: 

1Based on 458 Failures between July 2, 2009 and December 15, 2017. All failures after June 2009 when the reciprocal deposits were first reported on the Call Reports. 

Figure 1 graphs the failing banks’ 

reciprocal deposits to assets ratio prior 

to failure. The median reciprocal 

deposits ratio at 5, 4, 3, 2, and 1 

quarter(s) before failure is 0%. In other 

words, the median failed bank did not 

hold any reciprocal deposits up to 5 

quarters prior to failure. The reciprocal 

deposit ratios at the 90th percentile of 

the distribution (the failed banks most 

reliant on reciprocal deposits) for the 5 

quarters before failure decline from 

nearly 1.6% to just over 0.2% of 

reciprocal deposit usage as banks 

approach failure. 

Figure 2 graphs the failing banks’ 

usage of non-reciprocal brokered 

deposits (as a percentage of assets) prior 

to failure. Figure 2 shows that the 

median bank usage of non-reciprocal 

brokered deposits also declines as the 

banks approach failure. In contrast, 

those banks most reliant on brokered 

deposits (the 90th percentile of the 

distribution), do not show any 

significant run off in non-reciprocal 

brokered deposits as the banks approach 

failure. 

Given the small sample size involved 

in this analysis, it is inappropriate to 

draw strong overall conclusions 

regarding the behavior of reciprocal 

deposits balances at failing banks. 

Moreover, since not all weak banks fail, 

the behavior of reciprocal deposit 

funding at weak banks (not analyzed in 

this memo) could also inform the 

regulatory debate about safety and 

soundness issues associated with 

reciprocal deposit usage. 


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Failure Prediction and Reciprocal 

Deposits 

We estimate three-year failure 

prediction models using 2009, 2012, 

and 2015 data to predict failures from 

2010 to 2017. We estimate failure 

models as a function of reciprocal and 

non-reciprocal brokered deposits. The 

results are reported in Table 6. Table 6 

reports the estimated coefficients and pvalues of the logistic regressions. 

In the failure model specification 

reported in Column (1) of Table 6, two 

funding ratios, reciprocal deposits and 

non-reciprocal brokered deposits are 

included. Table 6 reports that the nonreciprocal brokered deposits ratio has a 

positive and statistically significant 

effect on a bank’s estimated probability 

of failure. 

Column (1) of Table 6 also shows that 

higher nonperforming loans and other 

real estate owned are positively and 

statistically significant variables in the 

bank failure probability model. 

Because we measure the banks’ 

liability components as ratios, as a bank 

increases its use of reciprocal deposits 

and non-reciprocal deposits, there are 

necessarily offsetting changes in the 

bank’s other funding sources. By 

including other funding measures in the 

models, we investigate whether the 

implicit shift in a bank’s liability 

structure (as a bank increases its 

dependence on reciprocal and nonreciprocal brokered deposits) is a 

possible source of the increase in failure 

probability. 

Column (2) of Table 6 reports the 

results of the failure probability model 

when we include a bank’s equity to 

asset ratio to control for bank leverage. 

By including the equity ratio in the 

model, the coefficient estimates on 

reciprocal and non-reciprocal brokered 

deposits measure the effect of increasing 

a bank’s reliance on these deposit 

sources and decreasing its reliance on 

other liabilities, holding the bank’s 

equity ratio unchanged. Holding the 

bank equity ratio constant, the estimated 

coefficient on non-reciprocal brokered 

deposits ratio is positive with a p-value 

of 0.128. The estimated coefficient on 

reciprocal deposits ratio remains 

statistically insignificant. 

Column (3) of Table 6 reports the 

failure model estimates when the model 

includes a bank’s reciprocal deposits, 

non-reciprocal brokered deposits, and 

core deposits to assets ratios. In this 

specification, the estimated coefficient 

on the reciprocal deposits ratio 

measures the effect of increasing 

reciprocal deposits, holding constant 

non-reciprocal brokered deposits and 

core deposits and reducing other bank 

liabilities. The coefficient of the 

reciprocal deposits ratio remains 

statistically insignificant. The 

coefficient of non-reciprocal deposits is 

statistically significant when core 

deposits are held constant. The 

coefficient of the core deposits ratio on 

bank failure probability is statistically 

insignificant. This result differs from the 

results in an earlier section as well as 

long standing FDIC experience where, 

on average, core deposits reduce the 

failure probability. 

Column (4) of Table 6 reports the 

failure model estimates when the model 

includes a bank’s reciprocal deposits, 

non-reciprocal brokered deposits, 

equity, and core deposits to assets 

ratios. In this specification, the 

estimated coefficient on the reciprocal 

deposits ratio measures the effect of 

increasing reciprocal deposits, holding 

constant non-reciprocal brokered 

deposits, equity, and core deposits and 

reducing other bank liabilities. The 

coefficient of reciprocal deposits 

remains statistically insignificant. The 

coefficient of non-reciprocal deposits is 

not statistically significant when the 

equity and core deposits ratios are both 

held constant. 

The results suggest that, on average, 

failed banks that used reciprocal 

brokered deposits did not use them as 

a substitute for equity or core deposit 

funding. The regression results show 

that equity and core deposits both 

decrease a bank’s probability of failure. 

If banks that used reciprocal deposits 

used them as a substitute for equity or 

core deposit funding, the reciprocal 

deposit coefficient in Column (1) would 

be positive and significant and mirror 

the coefficient for non-reciprocal 

deposits. The fact that the reciprocal 

deposit coefficient in Column (1) is 

insignificant is consistent with the 


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Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules 2393 

79The Loss rate model is based on 457 failures 

instead of 458 as reported in Table 5. One 

institution was excluded from loss rate model 

estimation because of abnormality in its last Call 

Report data. Namely, its core deposits to assets ratio 

was higher than 100%. 

80There are some banks in the sample that have 

not filed Call Reports/TFRs on the quarter prior to 

its failure. For those banks, we use Call Reports/ 

TFRs as of two quarters prior to failure. 

interpretation that banks that used 

reciprocal brokered deposits in this 

sample period did not use them to 

substitute for equity or core deposit 

funding. At the same time, this analysis 

is based on a small sample limited to 

failures between 2010 and 2017. We 

believe it is inappropriate to place a 

high degree of confidence in the results 

of the analysis based on this limited 

sample. 

TABLE 6—THREE YEAR FAILURE PREDICTION MODELS FOR RECIPROCAL DEPOSITS

Variables Coefficient 

estimates 

Coefficient 

estimates 

Coefficient 

estimates 

Coefficient 

estimates 

(1) (2) (3) (4) 

Intercept ........................................................................................................... ***¥7.053 ***¥2.995 *¥9.289 ¥1.602 

[0.000] [0.000] [0.069] [0.137] 

Non-reciprocal brokered deposits .................................................................... *** 0.023 0.014 *** 0.033 ¥0.003 

[0.001] [0.128] [0.001] [0.836] 

Reciprocal deposits ......................................................................................... ¥0.015 ¥0.028 0.001 ¥0.040 

[0.544] [0.349] [0.978] [0.181] 

Equity ............................................................................................................... ........................ ***¥0.508 ........................ ***¥0.520 

........................ [0.000] ........................ [0.000] 

Core deposits ................................................................................................... ........................ ........................ 0.019 **¥0.019 

........................ ........................ [0.515] [0.033] 

Nonperforming loans ....................................................................................... *** 0.190 *** 0.142 *** 0.184 *** 0.142 

[0.000] [0.000] [0.000] [0.000] 

Other real estate owned .................................................................................. *** 0.086 0.040 ** 0.075 0.042 

[0.001] [0.210] [0.030] [0.182] 

Income before taxes ........................................................................................ ***¥0.090 **¥0.097 ***¥0.092 **¥0.101 

[0.000] [0.026] [0.000] [0.028] 

Interest expense .............................................................................................. ¥0.018 *** 0.419 0.561 * 0.359 

[0.499] [0.000] [0.746] [0.078] 

Asset growth .................................................................................................... ** 0.009 *** 0.021 0.014 *** 0.020 

[0.037] [0.000] [0.388] [0.000] 

CRE loans ........................................................................................................ 0.0002 0.0007 ¥0.0007 0.001 

[0.979] [0.929] [0.923] [0.890] 

C&D loans ........................................................................................................ *** 0.035 *** 0.047 *** 0.034 *** 0.046 

[0.004] [0.001] [0.007] [0.001] 

C&I loans ......................................................................................................... 0.007 0.022 0.012 0.021 

[0.534] [0.111] [0.589] [0.121] 

Consumer loans ............................................................................................... ¥0.014 ¥0.030 ¥0.026 ¥0.025 

[0.484] [0.599] [0.506] [0.632] 

CAMELS 3 ....................................................................................................... *** 1.772 *** 1.498 *** 1.772 *** 1.501 

[0.000] [0.000] [0.000] [0.000] 

CAMELS 4 or 5 ............................................................................................... *** 3.730 *** 2.101 *** 3.576 *** 2.087 

[0.000] [0.000] [0.000] [0.000] 

Pseudo R2 ....................................................................................................... 0.543 0.633 0.545 0.634 

Wald Chi2 ........................................................................................................ 867 733 838 744 

No. of observations .......................................................................................... 21225 21225 21225 21225 

Notes: 

1 Using year-end Call Reports from 2009, 2012, and 2015 to predict 363 failures from 2010 to 2017. 

2 Core deposits is defined as domestic deposits minus time deposits over the insurance limit and fully insured brokered deposits.

3All financial variables are normalized by total assets with the exception of CAMELS rating 3, CAMELS rating 4 or 5, and Asset Growth. CAMELS rating 3 and CAMELS rating 4 or 5 are dummy variables indicating that the institution is CAMELS 3-rated and the institution is CAMELS 4 

or 5-rated, respectively. Asset Growth is the institution’s one-year asset growth rate. 4The regressions include time fixed effects, but the coefficient estimates are not reported. 

5Standard errors are clustered by bank. 

*** Indicates statistical significance at the 1 percent level. ** Indicates statistical significance at the 5 percent level. * Indicates statistical significance at the 10 percent level. P-values are reported in brackets. 

Failure Loss Rate Models Including 

Reciprocal Deposits 

In this section, we examine whether 

banks’ reliance on reciprocal brokered 

deposits are associated with differential 

failure loss rates. Again, data on 

reciprocal brokered deposits limits the 

sample to banks that failed between July 

2009 and December 2017.79

Failed bank loss rates are modeled as 

a function of the income and balance 

sheet characteristics of the failed bank. 

The explanatory variables included in 

the model are reciprocal deposits, nonreciprocal brokered deposits, equity, 

core deposits, nonperforming loans, 

other real estate owned, income earned 

but not collected, and loans to executive 

officers. In addition, we include a 

bank’s concentration in CRE 

(commercial real estate), C&D 

(construction and development), C&I 

(commercial and industrial), and 

consumer loans. The model allows loss 

rates to differ for small (asset size $500 

million or less), medium (asset size 

between $500 million to $1 billion), and 

large (asset size $1 billion and higher) 

banks. The year fixed-effects are added 

to capture any difference in 

unconditional loss rates across years. 

Call Report/TFR data are from the last 

quarter before the bank failure date.80


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TABLE 7—LOSS RATE MODELS INCLUDING RECIPROCAL BROKERED DEPOSITS

Variable Coefficient 

estimates 

Coefficient 

estimates 

Coefficient 

estimates 

Coefficient 

estimates 

(1) (2) (3) (4) 

Intercept ........................................................................................................... *** 11.754 *** 13.479 0.551 5.101 

[0.000] [0.000] [0.890] [0.220] 

Non-reciprocal brokered deposits .................................................................... * 0.092 * 0.095 *** 0.262 *** 0.218 

[0.090] [0.073] [0.000] [0.003] 

Reciprocal deposits ......................................................................................... ¥0.253 ¥0.230 ¥0.131 ¥0.145 

[0.448] [0.483] [0.694] [0.658] 

Equity ............................................................................................................... ........................ ***¥0.738 ........................ ***¥0.623 

........................ [0.000] ........................ [0.001] 

Core deposits ................................................................................................... ........................ ........................ *** 0.168 ** 0.121 

........................ ........................ [0.001] [0.016] 

Nonperforming loans ....................................................................................... *** 0.502 *** 0.415 *** 0.467 *** 0.404 

[0.000] [0.000] [0.000] [0.000] 

Other real estate owned .................................................................................. *** 0.827 *** 0.783 *** 0.801 *** 0.771 

[0.000] [0.000] [0.000] [0.000] 

Income earned but not collected ..................................................................... *** 6.453 *** 6.361 *** 6.276 *** 6.247 

[0.000] [0.000] [0.000] [0.000] 

Loan to executive officers ................................................................................ 0.041 ¥0.074 0.020 ¥0.071 

[0.915] [0.844] [0.958] [0.848] 

Bank size between $500 mil–$1 bil ................................................................. ***¥6.063 ***¥5.905 ***¥5.526 ***¥5.540 

[0.000] [0.000] [0.001] [0.001] 

Bank size > $1 billion ...................................................................................... ***¥8.686 ***¥8.305 ***¥7.151 ***¥7.253 

[0.000] [0.000] [0.000] [0.000] 

CRE loans ........................................................................................................ 0.018 0.027 0.013 0.022 

[0.695] [0.549] [0.780] [0.628] 

C&D loans ........................................................................................................ 0.123 * 0.137 * 0.134 * 0.143 

[0.103] [0.065] [0.073] [0.053] 

C&I loans ......................................................................................................... ** 0.162 * 0.138 * 0.151 * 0.134 

[0.043] [0.079] [0.056] [0.087] 

Consumer loans ............................................................................................... ** 0.705 *** 0.758 ** 0.702 *** 0.747 

[0.013] [0.007] [0.012] [0.007] 

Adjusted R2 ...................................................................................................... 0.315 0.341 0.332 0.348 

No. of observations .......................................................................................... 457 457 457 457 

Notes: 

1Estimates use data from 2009 to 2017 to predict 457 failure loss rates from July 2, 2009 to December 15, 2017. 

2 Core deposits are defined as domestic deposits minus time deposits over the insurance limit and fully insured brokered deposits. 3All financial variables are normalized by total assets with the exception of Bank size between $500 mil–$1 bil and Bank size > $1billion. Bank 

size between $500 mil–$1 bil is a dummy variable indicating that the institution’s asset size is between $500 million and $1 billion. Bank size > 

$1billion is a dummy variable indicating that the institution’s asset size is over $1 billion. 4The regressions include year fixed effects, but not reported. 

*** Indicates statistical significance at the 1 percent level. ** Indicates statistical significance at the 5 percent level. * Indicates statistical significance at the 10 percent level. P-values are reported in brackets. 

Table 7 reports the results of the 

failure loss rate model. Column (1) of 

Table 7 shows that higher 

nonperforming loans and other real 

estate owned are associated with higher 

loss rates. Banks with higher C&I and 

consumer loans (to assets ratios also 

tend to have higher loss rates. Mediumsized and large failed banks tend to have 

lower loss rates compared to small 

banks. 

In the specification reported in 

Column (1), reciprocal deposits and 

non-reciprocal brokered deposits ratios 

are included. The estimated coefficients 

for reciprocal deposits and nonreciprocal brokered deposits ratios 

measure the effect of increases in these 

ratios and an offsetting reduction in 

other funding sources on the loss rate. 

The positive and statistically significant 

coefficient on non-reciprocal brokered 

deposits suggests that an increase in 

non-reciprocal brokered deposits (and 

an offsetting decrease in other funds 

either equity or other liabilities) 

increases the DIF loss rate. The 

coefficient on reciprocal deposits ratio 

is not statistically significant. 

Column (2) of Table 7 reports results 

when the failed bank’s equity ratio is 

also included as an explanatory 

variable. The positive and statistically 

significant coefficient on non-reciprocal 

brokered deposits ratio suggests that 

increasing reliance on non-reciprocal 

brokered deposits, holding bank equity 

constant and reducing liabilities other 

than reciprocal deposits, increases the 

DIF loss rate. The estimated coefficient 

on reciprocal deposits ratio remains 

statistically insignificant. The negative 

and statistically significant coefficient 

on the equity ratio suggests that 

increasing equity and decreasing a 

bank’s reliance on other liabilities with 

no change in non-reciprocal brokered 

and reciprocal deposits reduces the loss 

rate. 

Column (3) of Table 7 reports results 

when the reciprocal deposits, nonreciprocal brokered deposits, and core 

deposits ratios are included as funding 

measures. The estimated coefficient on 

non-reciprocal brokered deposits ratio is 

positive and statistically significant 

suggesting that, holding the reciprocal 

deposits and core deposits ratios 

constant, increasing non-reciprocal 

deposits and decreasing other bank 

liabilities and possibly equity, increases 

the failure loss rate. Reciprocal deposits 

are statistically insignificant. 

Column (4) of Table 7 reports results 

when the reciprocal deposits, nonreciprocal brokered deposits, equity, 

and core deposits ratios are included as 

funding measures. The estimated 

coefficient on the non-reciprocal 


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brokered deposits ratio is positive and 

statistically significant, suggesting that, 

holding reciprocal deposits, equity, and 

core deposits ratios constant, increasing 

non-reciprocal deposits and decreasing 

other bank liabilities increases the 

failure loss rate. 

The results reported in Table 7 do not 

suggest that the use of reciprocal 

deposits have been associated with 

higher loss rates on average while nonreciprocal brokered deposits clearly 

have a strong relationship with FDIC 

losses. At the same time, the sample size 

is small and specialized to the crisis. 

Unlike the full brokered deposit sample 

results (reported in an early section) and 

FDIC practical resolution experience, 

core deposits do not clearly reduce FDIC 

losses. While the reasons for this 

difference in findings are beyond the 

scope of this analysis, it is likely that 

they owe in part to the intensive FDIC 

resolution activity in this sample period 

with heavy reliance on loss sharing 

agreements. There were an unusually 

large number of bank franchises 

available through the FDIC resolution 

process at a time when franchise values 

may also have been depressed due to 

unusually weak opportunities for 

profitable lending growth. These issues 

raise concerns that the limited data in 

reciprocal deposit sample may not be 

representative of the characteristics of 

the true failure population. On balance, 

we believe it is inappropriate to place a 

high degree of confidence in the results 

of the analysis of this limited and 

potentially unrepresentative sample 

period. 

CAMELS Ratings of Banks Using 

Reciprocal Deposits 

In this section, we investigate what 

type of banks use reciprocal deposits. In 

particular, we analyze the financial 

health of these banks by looking at their 

CAMELS ratings. We identify banks 

with positive reciprocal deposits on 

their balance sheet. We investigate the 

relationship between CAMELS ratings 

and the use of reciprocal brokered 

deposits. During the crisis, in 2009 and 

2010, banks with reciprocal deposits 

made up higher percentages of banks 

with a 3, 4, or 5 composite CAMELS 

rating. Banks with reciprocal deposits 

made up a smaller share of banks with 

a 1 CAMELS rating. By 2011, banks with 

reciprocal deposits made up higher 

percentages of banks with a 2 or 3 

CAMELS rating, although the share 

banks with reciprocal deposits and a 4 

or 5 CAMELS rating was still higher 

than the share with a 1 CAMELS rating. 

In 2017, banks with reciprocal deposits 

made up higher percentages of banks 

with a 1 or 2 CAMELS rating. 

Figure 3 charts the percentages of 

banks with positive reciprocal deposits 

for each rating category as of December 

2017. For instance, 19.35% of all banks 

with CAMELS rating of 1 had reciprocal 

deposits in December 2017. A 

substantially lower share, 6.56% of 4 

rated banks and 9.68% of 5 rated banks 

had reciprocal deposits. 

Analysis of Listing Services Deposits 

In this section we use the available 

data to analyze non-brokered listing 

service deposit use patterns and the 

effects of listing service deposits on the 

probability of bank failure and DIF loss 

rates. Banks began reporting nonbrokered listing service deposit funds 

beginning March 2011. 

Table 8 reports the distribution of 

different listing service deposit ratios by 

Call Report date. The first panel of Table 

8 reports the distribution of different 

listing service deposit ratios (total 

listing service deposits relative to total 

assets, total domestic deposits, and total 

brokered deposits) for December 2011. 

Row (3) reports the distribution of the 

ratios of listing service deposits to total 

brokered deposits, among banks that 

reported non-zero brokered deposits. 

Across the available Call Report filing 

dates, the average bank’s reliance on 


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81 Given the small sample size involved in this 

analysis, it is inappropriate to draw strong overall 

conclusions regarding the behavior of listing service 

deposits balances at failing banks. Moreover, since 

all weak banks do not fail, the behavior of listing 

listing service deposits shows a stable 

trend. The mean total listing service to 

assets ratio in December 2017 was 

1.18% which was similar to 1.36% in 

December 2011. In December 2017, the 

average listing service deposit to total 

brokered deposit ratio was much higher 

at 1197.21. 

TABLE 8—DISTRIBUTION OF LISTING DEPOSITS AS A RATIO OF ASSETS AND DOMESTIC DEPOSITS BY CALL REPORT DATE

N Max 99th 95th 90th Med Mean 

December 2011 

(1) ................ Listing services deposits/Assets ................ 7366 85.89 23.18 9.57 3.56 0 1.36 

(2) ................ Listing services deposits/Total Domestic 

Deposits.

7364 100.00 28.11 11.18 4.34 0 1.61 

(3) ................ Listing services deposits/Total Brokered 

Deposits.

3015 86730 4089.05 514.81 173.12 0 239.09 

December 2017 

(1) ................ Listing services deposits/Assets ................ 5679 45.92 19.69 7.71 3.48 0 1.18 

(2) ................ Listing services deposits/Total Domestic 

Deposits.

5678 97.71 25.43 9.66 4.35 0 1.49 

(3) ................ Listing services deposits/Total Brokered 

Deposits.

2527 2550800 1627.28 281.10 122.34 0 1197.21 

Listing Service Deposit Usage at Failed 

Banks 

In this section, we examine the extent 

to which failed banks relied on nonbrokered listing service deposits. 

Because of data limitations on listing 

service deposits, the analysis includes 

only banks that failed between April 8, 

2011 and December 15, 2017. During 

this period, 180 banks failed. 

Table 9 reports number (percentage in 

parenthesis) of failed banks that 

reported positive listing service deposits 

on their balance sheet prior to their 

failure. In this table, data are analyzed 

according to the Call Report data 

reported a selected number of quarters 

before the bank failure date. Listing 

service deposits were first reported on 

Call Reports in March 2011. We are 

limited to 63 failures, which failed 

between January 2013 and December 

2017, to have 8 quarters of Call Report 

data with listing service deposit 

information. In contrast, there are 180 

failures, which failed between April 

2011 to December 2017, with 1 quarter 

of Call Report data with listing service 

deposit information. 

The data suggest a number of 

consistent patterns. Somewhere 

between 60 and 65 percent of the failed 

banks used listing service deposits for at 

least 8 quarters before they failed. There 

is also evidence that suggests that some 

of these failed banks increased use of 

listing service deposits in the quarters 

leading up to their failure. 

TABLE 9—LISTING DEPOSITS USAGE IN FAILED BANKS BY QUARTER BEFORE FAILURE

Number of quarters before failure Number of 

observations 

Number of banks 

with positive listing 

deposits reported 

(%) 

(1) (2) (3) 

8 .......................................................................................................................................................................................................... 63 40 (63.49) 

7 .......................................................................................................................................................................................................... 71 44 (61.97) 

6 .......................................................................................................................................................................................................... 83 51 (61.45) 

5 .......................................................................................................................................................................................................... 98 62 (63.27) 

4 .......................................................................................................................................................................................................... 114 72 (63.16) 

3 .......................................................................................................................................................................................................... 132 85 (64.39) 

2 .......................................................................................................................................................................................................... 158 108 (68.35) 

1 .......................................................................................................................................................................................................... 180 116 (64.44) 

Notes: 

1Based on 180 failures between April 8, 2011 and December 15, 2017. All failures are after March 2011 when the listing services deposits were first reported on 

the Call Reports. 

Figure 4 graphs the failing banks’ 

listing service deposits to assets ratio 

prior to failure, based on 180 failures 

between April 8, 2011, and December 

15, 2017. The median listing service 

deposits ratio increases from 

approximately 4% at 5 quarters before 

failure to just over 5% at 1 quarter 

before failure. The listing service 

deposit ratios at the 90th percentile of 

the distribution (the failed banks most 

reliant on listing service deposits) 

increased from about 26% at 5 quarters 

before failure to 33% at 1 quarter before 

failure, which shows an increase of 

listing service deposit usage as banks 

approach failure. 

Figure 5 graphs the failing banks’ 

usage of listing service deposits (as a 

percentage of assets) prior to failure, 

based on 63 failures between January 

11, 2013 and December 15, 2017. This 

time frame incorporates banks that 

failed and had at least 8 quarters of data 

on listing service deposits. Figure 5 

shows that the median bank usage of 

listing service deposits remains 

relatively stable as the banks approach 

failure. In contrast, those banks most 

reliant on listing service deposits (the 

90th percentile of the distribution), 

show an initial increase in listing 

service deposits as the banks approach 

failure.81


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Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules 2397 

service deposit funding at weak banks (not analyzed 

in this memo) could also inform the regulatory 

debate about safety and soundness issues associated 

with listing service deposit usage. 


amozie on DSK3GDR082PROD with PROPOSALS3EP06FE19.023</GPH>

Figure 4 

Distribution of Listing Services Deposits to Total Assets Ratio in the Quarters Prior to 

Failure ,~~~··~·~·-~······~····~-~······-···············~·-- -~-~·--·-~···················~··············~·····~·-·······~·-~·····-·~··~·~-·--·~·-·--·-········-·-··-·············-~·-··-···· 

35 

30 

25 

Qj "' 

~ "' 20 

Ill 

.... 

0 

1- 15 

-0 

"*' 10 

5 

0 

Notes: 

.,.--- .,.-

. 

• -== 

.. - - 5 4 

..... ---..,_ - -+ 

- • ===--~·~· • -- .. -----·-----... ,_= 

3 2 1 

~ • p90 Listing Deposits 

~ p50 Listing Deposits 

- ,._ P10 Listing Deposits 

1

Based on 180 failures between April 8, 2011 and December 15, 2017. All failures are 

after March 2011 when the listing services deposits were first reported on the Call 

Reports. 
2398 Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules 

Failure Prediction and Listing Service 

Deposits 

We estimate three-year failure 

prediction models using 2011 and 2014 

data to predict failures between 2012 

and 2017. We estimate failure models as 

a function of non-brokered listing 

service deposits and non-listing, nonbrokered deposits. Table 10 reports the 

estimated coefficients and p-values of 

the logistic regressions. 

In the failure model specification 

reported in Column (1) of Table 10, only 

the listing service deposits ratio is 

included to characterize a bank’s 

liability structure. Column (1) of Table 

10 reports that the listing service 

deposits ratio has a positive and 

statistically significant effect on a bank’s 

estimated probability of failure. 

Because we measure the banks’ 

liability components as ratios, as a bank 

increases its use of listing service 

deposits, there are necessarily offsetting 

changes in the bank’s other funding 

sources. By including other funding 

measures in the models, we investigate 

whether the implicit shift in a bank’s 

liability structure (as a bank increases 

its dependence on listing service and 

other non-listing, non-brokered 

deposits) is a possible source of the 

increase in failure probability. 

Column (2) of Table 10 reports the 

results of the failure probability model 

when we include a bank’s equity to 

asset ratio to control for bank leverage. 

By including the equity ratio in the 

model, the coefficient estimates on 

listing service deposits measure the 

effect of increasing a bank’s reliance on 

this deposit source and decreasing its 

reliance on other liabilities, holding the 

bank’s equity ratio unchanged. The 

estimated coefficient on the listing 

service deposits ratio becomes 

statistically insignificant when equity is 

held constant. 

Column (3) of Table 10 reports the 

failure model estimates when the model 

includes a bank’s listing service 

deposits and non-listing, non-brokered 

deposits. In this specification, the 

estimated coefficient on the listing 

deposits ratio measures the effect of 

increasing listing deposits, holding 

constant non-listing, non-brokered 

deposits and reducing other bank 

liabilities. The estimated coefficient on 

listing service deposits is positive and 

statistically significant. Moreover, the 

estimated coefficient on non-listing, 

non-brokered deposits is positive and 

statistically significant. To the extent 

that non-listing, non-brokered deposits 

is a measure of banks’ core deposits, this 

result differs from those reported in 

Tables 1 and 2 based on a dataset with 

longer bank failure experiences. Column 

(4) of Table 10 reports the failure model 

estimates when the model includes a 

bank’s listing deposits, non-listing nonbrokered deposits, and equity ratios. In 

this specification, the estimated 

coefficient on the listing deposits ratio 

measures the effect of increasing listing 

deposits, holding constant non-listing 

non-brokered deposits and equity, and 

reducing other bank liabilities. The 

coefficient of listing deposits becomes 

statistically insignificant. The 

coefficient of non-listing, non-brokered 

deposits is no longer statistically 

significant when the equity ratio is held 

constant. 

This analysis is based on a small 

sample limited to failures between 2012 

and 2017. We believe it is inappropriate 

to place a high degree of confidence in 

the results of the analysis based on this 

limited sample. 


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TABLE 10—THREE YEAR FAILURE PREDICTION MODELS INCLUDING LISTING SERVICES DEPOSITS

Variables Coefficient 

estimates 

Coefficient 

estimates 

Coefficient 

estimates 

Coefficient 

estimates 

(1) (2) (3) (4) 

Intercept ............................................................................................................................................ ***¥8.068 ***¥2.929 ***¥15.281 **¥4.416 

[0.000] [0.000] [0.000] [0.019] 

Listing services deposits ................................................................................................................... ** 0.021 0.013 *** 0.109 0.028 

[0.025] [0.248] [0.000] [0.215] 

Equity ................................................................................................................................................ ........................ ***¥0.537 ........................ ***¥0.519 

........................ [0.000] ........................ [0.000] 

Non-listing, non-brokered deposits ................................................................................................... ........................ ........................ *** 0.087 0.015 

........................ ........................ [0.000] [0.456] 

Nonperforming loans ......................................................................................................................... *** 0.137 *** 0.124 *** 0.138 *** 0.125 

[0.000] [0.001] [0.000] [0.001] 

Other real estate owned ................................................................................................................... *** 0.088 * 0.065 * 0.054 0.059 

[0.002] [0.064] [0.066] [0.101] 

Income before taxes ......................................................................................................................... ***¥0.256 **¥0.218 ***¥0.310 ***¥0.222 

[0.002] [0.008] [0.000] [0.006] 

Interest expense ................................................................................................................................ 0.394 ** 0.728 *** 0.668 *** 0.861 

[0.146] [0.024] [0.000] [0.001] 

Asset growth ..................................................................................................................................... ¥0.005 0.002 ¥0.002 0.003 

[0.687] [0.890] [0.858] [0.835] 

CRE loans ......................................................................................................................................... ¥0.011 ¥0.022 ¥0.019 ¥0.023 

[0.335] [0.104] [0.151] [0.102] 

C&D loans ......................................................................................................................................... ¥0.009 ¥0.017 0.0001 ¥0.015 

[0.693] [0.548] [0.996] [0.584] 

C&I loans ........................................................................................................................................... 0.008 0.036 0.011 0.036 

[0.734] [0.164] [0.649] [0.165] 

Consumer loans ................................................................................................................................ 0.007 ¥0.004 ¥0.018 ¥0.007 

[0.872] [0.959] [0.799] [0.929] 

CAMELS 3 ........................................................................................................................................ 0.941 0.643 0.790 0.650 

[0.274] [0.382] [0.313] [0.373] 

CAMELS 4 or 5 ................................................................................................................................. *** 3.656 *** 1.459 *** 3.170 *** 1.449 

[0.000] [0.008] [0.000] [0.009] 

Pseudo R2 ........................................................................................................................................ 0.500 0.609 0.526 0.609 

Wald Chi2 .......................................................................................................................................... *** 259 *** 374 *** 287 *** 377 

N ........................................................................................................................................................ 13,857 13,857 13,857 13,857 

Notes: 

1 Using year-end Call Reports 2011 and 2014 to predict 113 failures between 2012 and 2017. 

2 Listing services deposits are defined as estimated amount of deposits obtained through the use of deposit listing services that are not brokered. 

3 Non-listing, non-brokered deposits are defined as domestic deposits minus listing service deposits and brokered deposits. 

4All financial variables are normalized by total assets with the exception of CAMELS rating 3, CAMELS rating 4 or 5, and Asset Growth. CAMELS rating 3 and 

CAMELS rating 4 or 5 are dummy variables indicating that the institution is CAMELS 3-rated and the institution is CAMELS 4 or 5-rated, respectively. Asset Growth is 

the institution’s one-year asset growth rate. 5The regressions include time fixed effects, but the coefficient estimates are not reported. 

6Standard errors are clustered by bank. 

*** Indicates statistical significance at the 1 percent level. ** Indicates statistical significance at the 5 percent level. * Indicates statistical significance at the 10 percent level. P-values are reported in brackets. 

Failure Loss Rate Models Including 

Listing Service Deposits 

In this section, we examine whether 

banks’ reliance on listing service 

deposits are associated with differential 

failure loss rates. Data on listing 

deposits limits the sample to banks that 

failed between April 8, 2011, and 

December 15, 2017. 

Failed bank loss rates are modeled as 

a function of the income and balance 

sheet characteristics of the failed bank. 

The explanatory variables included in 

the model are listing service deposits, 

non-listing, non-brokered deposits, 

equity, nonperforming loans, other real 

estate owned, income earned but not 

collected, and loans to executive 

officers. In addition, we include a 

bank’s concentration in CRE 

(commercial real estate), C&D 

(construction and development), C&I 

(commercial and industrial), and 

consumer loans. The model allows loss 

rates to differ for small (asset size $500 

million or less), medium (asset size 

between $500 million to $1 billion), and 

large (asset size $1 billion and higher) 

banks. The year fixed-effects are added 

to capture any difference in 

unconditional loss rates across years. 

Call Report/TFR data are from the last 

quarter before the bank failure date. 

TABLE 11—LOSS RATE MODELS INCLUDING LISTING DEPOSITS

Variable Coefficient 

estimate 

Coefficient 

estimate 

Coefficient 

estimate 

Coefficient 

estimate 

(1) (2) (3) (4) 

Intercept ............................................................................................................................................ *** 11.256 *** 11.920 ¥1.982 ¥0.231 

[0.001] [0.001] [0.813] [0.979] 

Listing Services Deposits .................................................................................................................. ** 0.103 * 0.092 ** 0.259 ** 0.237 

[0.029] [0.053] [0.012] [0.026] 

Equity ................................................................................................................................................ ........................ ¥0.359 ........................ ¥0.269 

........................ [0.247] ........................ [0.391] 

Non-listing, non-brokered deposits ................................................................................................... ........................ ........................ * 0.149 0.135 

........................ ........................ [0.086] [0.126] 

Nonperforming loans ......................................................................................................................... ** 0.273 ** 0.254 ** 0.296 ** 0.280 

[0.021] [0.033] [0.012] [0.020] 

Other real estate owned ................................................................................................................... *** 0.528 *** 0.520 * 0.507 *** 0.503 


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82The limited data in listing service deposit 

sample may not be representative of the 

characteristics of the true failure population. On 

balance, we believe it is inappropriate to place a 

high degree of confidence in the results of the 

analysis of this limited and potentially 

unrepresentative sample period. 

TABLE 11—LOSS RATE MODELS INCLUDING LISTING DEPOSITS—Continued 

Variable Coefficient 

estimate 

Coefficient 

estimate 

Coefficient 

estimate 

Coefficient 

estimate 

(1) (2) (3) (4) 

[0.000] [0.000] [0.001] [0.001] 

Income earned but not collected ...................................................................................................... *** 13.242 *** 13.167 * 13.802 *** 13.692 

[0.000] [0.000] [0.000] [0.000] 

Loan to executive officers ................................................................................................................. ¥0.265 ¥0.287 ¥0.180 ¥0.205 

[0.617] [0.588] [0.733] [0.699] 

Bank size $500 mil–$1 billion ........................................................................................................... ¥4.117 ¥3.924 ¥2.638 ¥2.633 

[0.126] [0.145] [0.347] [0.348] 

Bank size > $1 billion ........................................................................................................................ *¥5.854 *¥5.773 ¥4.358 ¥4.439 

[0.089] [0.094] [0.217] [0.209] 

CRE loans ......................................................................................................................................... ¥0.030 ¥0.025 ¥0.034 ¥0.030 

[0.607] [0.668] [0.558] [0.608] 

C&D loans ......................................................................................................................................... 0.052 0.052 0.006 0.011 

[0.720] [0.720] [0.965] [0.941] 

C&I loans ........................................................................................................................................... 0.101 0.096 0.105 0.100 

[0.379] [0.405] [0.360] [0.381] 

Consumer loans ................................................................................................................................ 0.330 0.359 0.242 0.272 

[0.437] [0.398] [0.568] [0.524] 

Adjusted R2 ....................................................................................................................................... 0.193 0.195 0.203 0.202 

No. of observations ........................................................................................................................... 180 180 180 180 

Notes: 

1Estimates based on data from March 2011 to September 2017 to predict loss rates of 180 failures from April 8, 2011 to December 15, 2017. 

2 Listing services deposits are defined as estimated amount of deposits obtained through the use of deposit listing services that are not brokered. 

3 Non-listing, non-brokered deposits are defined as domestic deposits minus listing service deposits and brokered deposits. 

4All financial variables are normalized by total assets with the exception of Bank size between $500 mil–$1 bil and Bank size > $1 billion. Bank size between $500 

mil–$1 bil is a dummy variable indicating that the institution’s asset size is between $500 million and $1 billion. Bank size > $1 billion is a dummy variable indicating 

that the institution’s asset size is over $1 billion. 5Failure year fixed effects are included but not reported. 

*** Indicates statistical significance at the 1 percent level. ** Indicates statistical significance at the 5 percent level. * Indicates statistical significance at the 10 percent level. P-values are reported in brackets. 

Table 11 reports the results of the 

failure loss rate model. Column (1) of 

Table 11 shows that higher 

nonperforming loans, other real estate 

owned, and income earned but not 

collected are associated with higher loss 

rates. Large failed banks tend to have 

lower loss rates compared to small 

banks. 

In the specification reported in 

Column (1), the listing service deposits 

ratio is included. The estimated 

coefficient for the listing service 

deposits ratio measures the effect of an 

increase in this ratio and an offsetting 

reduction in other funding sources on 

the loss rate. The positive and 

statistically significant coefficient on 

listing service deposits suggests that an 

increase in listing service deposits (and 

an offsetting decrease in other funds 

either equity or other liabilities) 

increases the DIF loss rate. 

Column (2) of Table 11 reports results 

when the failed bank’s equity ratio is 

also included as an explanatory 

variable. The positive and statistically 

significant coefficient on the listing 

service deposits ratio suggests that 

increasing reliance on listing service 

deposits, holding bank equity constant 

and reducing other liabilities, increases 

the DIF loss rate. The estimated 

coefficient on equity is not statistically 

significant. 

Column (3) of Table 11 reports results 

when listing services deposits and nonlisting, non-brokered deposits ratios are 

included as funding measures. The 

estimated coefficient on listing services 

deposits ratio remains positive and 

statistically significant suggesting that, 

holding the non-listing, non-brokered 

deposits ratios constant, increasing 

listing services deposits and decreasing 

other bank liabilities and possibly 

equity, increases the failure loss rate. 

Column (4) of Table 11 reports results 

when the listing services deposits, nonlisting non-brokered deposits, and 

equity ratios are included as funding 

measures. The estimated coefficient on 

the listing services deposits ratio is 

positive and statistically significant, 

suggesting that, holding non-listing nonbrokered deposits and equity ratios 

constant, increasing listing services 

deposits and decreasing other bank 

liabilities increases the failure loss rate. 

An unexpected result is that equity 

remains statistically insignificant in 

reducing DIF loss rates. The non-listing, 

non-brokered deposits ratio also 

becomes statistically insignificant. 

The results reported in Table 11 

suggest that the use of listing service 

deposits are associated with higher loss 

rates on average. At the same time, the 

sample size is small and specialized to 

the failures from 2012 to 2017. Unlike 

the full brokered deposit sample results 

(reported in an early section) and FDIC 

practical resolution experience, equity 

does not clearly reduce FDIC losses.82

Dated at Washington, DC, on December 18, 

2018. 

By order of the Board of Directors. 

Federal Deposit Insurance Corporation. 

Valerie Best, 

Assistant Executive Secretary. 

[FR Doc. 2018–28273 Filed 2–5–19; 8:45 am] 

BILLING CODE 6714–01–P 


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