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By Jeff Bater
Nov. 13 — A banking regulator has refreshed guidance to further help lenders correctly identify a brokered deposit, a funding source that carries higher risk than core deposits.
The Federal Deposit Insurance Corporation (FDIC) released a set of frequently asked questions (FAQs) that updates guidance put out last January on identifying, accepting and reporting brokered deposits. The new guidance says insurance agents, lawyers and accountants don't necessarily need to be considered brokers when referring customers to banks informally.
“The FDIC recognizes that within a community, there are many business professionals that conduct banking business with a particular insured financial institution, and due to that banking allegiance, often refer their customers to a particular financial institution on an informal basis for deposit products,” the agency said in its new guidance. “The deposits produced by those types of informal deposit referrals would generally not be considered brokered. The deposits would be brokered, however, in more formal, programmatic arrangements between the insured depository institution and the business professionals.”
The new guidance also said the FDIC “does not believe that dual employees or contractors should be classified as deposit brokers in all situations.”
Brokered deposits are large sums of deposits that banks acquire from brokers in exchange for high interest rates. Core deposits include deposits made by individuals to checking accounts, savings accounts and certificates of deposit.
The Federal Deposit Insurance Act and the agency's regulations define the term “deposit broker” and restrict the acceptance of brokered deposits by FDIC-insured banks that are not well capitalized.
In a 2011 study, the FDIC said it found some failures in the latest wave of collapses were occurring where there were concentrations in commercial real estate (CRE) and construction and development (C&D) lending funded by large amounts of brokered deposits. In October 2008, the FDIC issued a notice of proposed rulemaking to increase assessment rates for well-managed, well-capitalized banks that used brokered deposits to grow quickly. The agency had noted at the time that brokered deposits combined with rapid asset growth played a role in a number of costly failures, including some recent ones (195 BBD, 10/8/08).
In its new guidance, the FDIC said that in some cases, a bank may be uncertain whether a particular deposit qualifies as a brokered deposit. The agency said that despite the existence of statute, regulations, advisory opinions and the study, questions continue to arise regarding the proper classification of certain types of deposits, “particularly since determining whether deposits are brokered tends to depend on specific facts surrounding a particular arrangement, which can evolve over time.”
The FDIC originally issued FAQs on brokered deposits in January to provide answers to questions on previously issued staff interpretations, advisory opinions and other documents. The agency said in January it would provide updates to the FAQs as necessary.
According to the FDIC, comments are welcome on the updated document by Dec. 28.
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