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Funding of Loan Growth is a BIG Subject

Brokered versus retail certificates of deposit continues to be an issue with banks and with regulators.  Recently in a release by the FDIC (FIL84-2008), a reiteration by the regulators that they will monitor the use of brokered deposits even more closely than they have in the past.  It seems however, that the portion of the release dealing with cash flow has been minimized, while the term brokered becomes a bad word.  Here is the problem.  Local, retail CD’s with any lengthy duration are difficult to come by.  Very few retail CD’s have maturities beyond the 1 year time horizon.  Also, partly because of the transferability of CD’s from one market to another (i.e. the brokered CD market), the retail CD’s have become very volatile to all institutions.  Brokered CD’s, can be structured to have much greater maturities than local CD’s and if structured in that manner may provide a much more stable source of funds to the financial institution.  It seems the regulators should follow the “money-trail” and begin to view the entire balance sheet liquidity rather than by looking merely at the official designation of a source of funding as being either “retail” or “brokered”.


Phill Rowley