Fixed Income Sales & Trading: Depository Funding

The use of brokered deposits to fund your bank can be a cost-effective funding alternative that will effectively meet your institution's needs for liquidity and asset/liability matching. Since the advent of bank deregulation in the early '80s, banks in the United States have been utilizing the brokered CD market to gather deposits. Since that time Northern Capital has been a reliable source of funding for hundreds of depository institutions across the nation. 

Brokered deposits are rapidly growing in popularity among banks as a funding source. Brokered deposits have advantages over borrowings and other liabilities. Among some of the benefits of utilizing brokered deposits are:   

• Unlike FHLB advances, no collateral is required.
• Costs can be less expensive than for local market deposits. Your bank can use brokered deposits to avoid upsetting the local deposit base.
• Settlement generally occurs in 7-10 days after the decision is made as opposed to the time needed to build a retail-funding base.
• Brokered CDs are available to banks nationwide.
• Brokered deposits come in buyer-defined maturities and amounts. This aids in the possibility of matching funding or positioning for ALM purposes.

There are essentially three guidelines for determining whether your bank is a candidate for brokered deposits. According to the FDIC’s Prompt Corrective Action, the guidelines are as follows: 

1. Well Capitalized Banks are allowed to solicit and accept, renew or roll over any brokered deposit without restriction.
2. Adequately Capitalized Banks may accept, renew or roll over any brokered deposit once it has applied for and been granted a waiver by the FDIC.
3. Undercapitalized Banks may not accept, renew, or roll over any brokered deposit.

Brokered deposits are also exceptional funding sources for inclusion in your contingent liquidity plan. Once they have been included, we recommend “testing” the line so that if and when deposits are needed, the process is practiced. Entering the brokered deposit market is surprisingly simple when executed through Northern Capital. Working closely with our clearing correspondent, we will execute the purchase on your behalf and place the funds in your DDA account on the day of settlement. All payments are made through the Depository Trust Corporation (DTC) in a single lump sum to minimize burden. Contact us to learn more about how your bank may benefit from our deposit funding program.