Brokered Deposits

Brokered deposits are funds placed with a bank through a third-party broker rather than coming directly from a primary banking relationship with a depositor. The broker — typically a securities firm, deposit-listing service, or specialized deposit broker — aggregates investor cash and places it at banks offering the most attractive rates, often as large CDs split into $250,000 tranches to maximize FDIC insurance coverage. The funding is structurally volatile because the broker's investors have no loyalty to the bank; when the bank's rates fall below market, the deposits leave at maturity.

Why Brokered Deposits Are Supervised Differently

The FDIC's supervisory framework treats brokered deposits as volatile funding because the depositors typically chase yield rather than relationship. A bank funded primarily through brokered deposits faces structural liquidity risk: if it cuts rates to manage net interest margin, deposits run off at the next maturity wave; if it raises rates to retain them, it compresses earnings. The supervisory expectation is that brokered deposits should never become the dominant funding source for a federally insured bank.

The framework escalates with the bank's capital position. Under 12 CFR §337.6 and the FDIC's brokered-deposit regulations:

The waiver requirement at the adequately-capitalized tier is the first operational signal of Prompt Corrective Action pressure. A bank approaching the Tier 1 leverage ratio 5% well-capitalized floor faces a binding choice: stop accepting brokered deposits, OR raise capital to stay above 5%. The first option starves the loan book of funding; the second is dilutive. The combination pushes management toward asset disposition — selling loan portfolios to reduce assets while retained earnings rebuild capital.

What Counts as a Brokered Deposit?

The FDIC's definition was substantially updated in 2020 to clarify the boundary between brokered and non-brokered. The current framework includes:

The 2020 update introduced the "primary purpose" exception, which carves out certain third-party deposit arrangements that don't have placing deposits as their main business purpose — for example, prepaid card programs or 1099 contractor pay programs. The exception is narrow and requires a notice filing with the FDIC.

How Note Investors Use Brokered-Deposit Concentration

The brokered-deposit ratio is reported on Schedule RC-E of the bank call report. The relevant metric:

Brokered Deposit Ratio = Brokered Deposits / Total Deposits

A Worked Example

A community bank reports $4.0B of total deposits, with $400M coming through brokered channels:

Brokered Deposit Ratio = $400M / $4,000M = 10.0%

A 10% brokered ratio is at the supervisory flag threshold — most healthy community banks run below 5%, and the supervisory norm treats anything above 10% as elevated funding risk. The FDIC Quarterly Banking Profile reports the systemwide brokered-deposit share at roughly 10% as of recent quarters, but the systemwide number masks heavy concentration at specific institutions — some banks run 30-50% brokered, an inherently fragile funding posture.

Brokered-Deposit Concentration as a Bank-Distress Signal

A bank with both high brokered-deposit concentration AND deteriorating capital is the textbook funding-and-capital-pressure pattern. The dual constraint:

1. Brokered deposits run off if the bank cannot match market rates.
2. Capital compression triggers PCA-driven restrictions on new brokered deposits.
3. The bank cannot simultaneously retain existing brokered deposits AND grow the funding base AND preserve capital.

The forced-seller response is asset disposition. Selling non-performing loans and underperforming portfolios shrinks the asset side, relieving the funding-and-capital squeeze. For supervisory context on the brokered-deposit framework under 12 CFR §324 capital regulations, see the FDIC Bankers Resource Center. Pair brokered-deposit concentration with ACL coverage trends and the Texas Ratio trajectory for the full funding-plus-credit distress picture.

Brokered Deposits and the 2023 Regional Bank Stress

The 2023 regional banking stress (Silicon Valley Bank, Signature Bank, First Republic) illustrated how brokered-deposit concentration interacts with rate-cycle stress. Several of the affected institutions had funded fast loan growth with brokered deposits and large uninsured deposit balances; when interest rates moved and depositor concerns grew, the brokered funding base ran off quickly, forcing rapid asset sales and ultimately FDIC receivership. The lesson — relearned periodically — is that brokered deposits are funding-cycle-sensitive, and concentrated brokered books amplify whatever credit-cycle stress the bank's asset side is already absorbing.

See current top 50 banks under capital and funding pressure → Capital-Pressured Institutions.