NY Times on "Brokered Deposits"
Friday's New York Times writes "For Banks, Wads of Cash and Loads of Trouble", which discusses the role that brokered deposits have played in numerous recent bank failures. (We learned of the article from Bank Deals.) The Times says, "Though few people have heard of it, hot money -- or brokered deposits, as it is also known in the industry -- is one of the primary factors in the accelerating wave of failures among small and regional banks nationwide. The estimated cost to the Federal Deposit Insurance Corporation over the last 18 months is $7.7 billion, and growing. Hot money has bedeviled regulators for three decades and they are starting to fight back, albeit tentatively, devising new restrictions to keep the practice from taking more banks down.... The 79 banks that have failed in the United States over the last two years had an average load of brokered deposits four times the national norm, according to an analysis performed for The New York Times by Foresight Analytics, an industry research firm based in California. And a third of the failed banks, the analysis shows, had both an unusually high level of brokered deposits and an extremely high growth rate -- often a disastrous recipe for banks." (Note that Crane Data will be featuring an article on "bankerage" or FDIC-insured brokerage sweep accounts, in our upcoming July issue of Money Fund Intelligence.)
