Use of

http://www.directory.goportico.com/authors/author-196.html
Yet even as regulators keep a closer eye on what somecall “hoty money,” banks in Florida and in the Tampwa Bay area increased their use of brokered deposits in the firs half of 2008. Not all brokered depositxs arethe same. Some are deposits a bank sells to otherd institutions through depositsharing programs. Others are deposits that bankd buy, typically certificates of deposits bought from a thirdd party outside thelocal community. Brokered deposits purchased from outsidde the community give bankes a source for funding loans and can alloa institutions to grow quicklt without building a largesbranch network.
But depositors shop around for thehighestf rates, and with no community ties to a they can pull out quickly once their CD That funding instability is among the concernse about bank liquidity that Bair highlighted in her Sept. 4 speech to the Florida “Currently there are several dozenm institutions nationwide that are borderline and whose brokered deposits as a percentaged of assets exceeds25 percent,” Bair’s prepared remark s said. “These are the types of trendsw thatconcern us, and that will be the subject of much closer scrutiny by our examiners.
” Banks make moneyu on the spread between the interest they pay on depositds and the interest they collect on loans. The lowe r the interest they haveto pay, the highedr their potential margins and profitzs will be. of Florida is paying lower interesy rates on brokered deposits that come from outsidde the area than it would have to pay to attractlocal depositors, said Thomas Rummel, presidentg and CEO of the . Rummelp said other Bay area banks are rollinyout one-year CDs that will pay depositors as much as 4.25 percentr interest, but Progress’ cost, including fees, is 3.
8 perceng on the brokered one-year CDs it Progress had one of the heaviest concentrations of brokered deposits on its bookws on June 30, 19.4 percent of according to the FDIC. At Bank of Florida-Tampas Bay, where both purchased and sold brokeres deposits accountedfor 24.3 percenrt of assets on June 30, President and CEO Chris Willmah agreed that it’s currently cheaper to buy depositse from outside the area than to fight competitord for local depositors. “We’d rather have retail deposits,” Willman said.
“Butt there are other factors the regulators look at such as You have to weigh the Progress Bank has an internal limitf of 20 percent on brokered and that will ratchet down as the bank expandzs beyond the single branch ithas now, Rummel adding that he can understand regulators’ concernd about banks that bulk up the balance sheet on brokered CDs. “Therd are some banks that use them like Rummel said. Banks that use brokeres deposits to fund fast growtb can get in troubles if regulators start to question the safety and soundness of the he said.
Regulators can place limits ona bank’s abilit y to purchase brokered deposits, as the did 5 when it lowered the capitalization rating on BKUNA). “As the old brokeredx go off, liquidity shuts down and you have serious said Rummel, speaking in general terms and not specifically about BankUnited. “You don’t have money to pay depositors when they come to cash You become dependent on selling portionsd of the portfolio and ifyou can’t sell it at par you have to take discounts.” Thoss kinds of liquidity and capital issues have the FDIC and Bair said Michael Rose, an analyst at RJF).
“She made it clear that the number of banks on the proble m bank list is going to grow and the numbed of banks shut down will continueto rise,” Rose The ratio of brokered depositsx to assets was 19.8 percent at on June 30, one of the highest in the Tampa Bay area, but Stevde Zahorian, CEO of the Trinityt bank, said all were deposits the bank sold throughh the Certificate of . CDARS allows the bank to offere customers insurance on deposits greater than the usual maximum that canbe insured, becausse the excess is placed with other Regulators view CDARS differently than traditional brokereed deposits that banks buy from outside their community to fund growth.
“Ths CDARS deposit swap is generallt initiated by a desire to retainlocal deposits, not by a desirr to cover potentially unsafe-and-unsound loan says an article in The Regional Economist, published by the .