Brokered Deposits

Brokered Deposits

Brokered deposits are funds that a bank receives through a third party, usually a deposit broker or financial advisor. Instead of coming directly from the bank’s own customers, these deposits are gathered from clients across the country who are looking for high interest rates.

For example, a small community bank may want to quickly raise money to support new loans. Instead of waiting for local customers to deposit funds, the bank can offer a high interest rate and work with a broker to bring in deposits from investors nationwide. These deposits are then placed into the bank, even though the investors may never set foot in the branch.

This is different from core deposits, which come from local customers who have checking or savings accounts with the bank. Core deposits are seen as more stable and loyal. In contrast, brokered deposits can move quickly if better rates are offered elsewhere, which makes them riskier.

Because of this risk, regulators watch brokered deposits closely. If a bank relies too heavily on them, it may face greater regulatory scrutiny. The concern is that in times of stress, these deposits could disappear faster than traditional customer deposits.

Why it matters: Brokered deposits can help banks grow quickly, but they also increase the risk of sudden outflows. Understanding how they work is important for anyone studying banking, risk management, or financial regulation.

Visit GLOBAL ABAS for more insights.

Disclaimer: This post is for informational purposes only and does not constitute financial, legal, or investment advice. Please consult a qualified professional for guidance tailored to your situation.

For personalized support, contact GLOBAL ABAS Consulting, LLC with your specific questions or concerns.

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