Core vs. Brokered Deposits
Core deposits come from the bank's own customers through its branch network, online platform, and relationship banking. Brokered deposits come through third-party intermediaries who shop for the highest rate on behalf of their clients. The distinction matters because core deposits represent a genuine franchise while brokered deposits are rented funding.
Why Core Deposits Are More Valuable
Core deposits are sticky. A small business that has its checking account, payroll service, and line of credit at a local bank is unlikely to move those deposits over a quarter-point rate difference. The switching costs, both financial and logistical, keep the money in place. That stability gives the bank reliable funding it can plan around.
Core deposits are also cheaper on average. Many core accounts pay no interest at all, and interest-bearing core accounts typically pay below wholesale market rates because the customer values the relationship and convenience, not just the yield.
Brokered deposits have neither advantage. They go wherever the best rate is. When a bank's CD rate falls below a competitor's, the broker moves the money. During periods of stress, brokered funding can evaporate quickly as brokers pull their allocations from banks perceived as risky.
Regulatory Treatment
Regulators view brokered deposits as a risk factor. Banks that are not well-capitalized face restrictions on accepting brokered deposits, which can create a dangerous feedback loop: a weakening bank loses access to brokered funding precisely when it needs deposits most.
The FDIC has refined the definition of brokered deposits several times. Some deposit arrangements that might seem brokered, like deposits gathered through fintech partnerships or listing services, receive different treatment depending on the specifics. The details matter for banks near the line.
What to Look For
Banks disclose brokered deposit levels in their call reports and sometimes in their 10-K filings. A bank where brokered deposits exceed 15% to 20% of total deposits is relying heavily on non-relationship funding. Compare this to the bank's core deposit growth trends. A bank with shrinking core deposits and growing brokered deposits is substituting expensive, flighty funding for the stable kind, which is a deteriorating franchise signal.
Also check whether the bank uses reciprocal deposit arrangements (like the IntraFi network) to help customers get FDIC insurance on large balances. These are sometimes classified differently than traditional brokered deposits and can represent a legitimate deposit-gathering strategy rather than a sign of weakness.
Related Articles
- Bank Deposit Composition — Core vs. brokered is one dimension of the broader deposit composition picture
- Uninsured Deposit Risk — Brokered deposits and uninsured deposits both represent funding stability risks
- Deposit Franchise Value — A strong core deposit base is the foundation of deposit franchise value
Related Metrics
- Cost of Deposits — Heavy reliance on brokered deposits pushes up the average cost of deposits
- Cost of Funds — Brokered funding typically costs more than core deposit alternatives
- Deposits to Assets Ratio — The composition of deposits matters as much as the overall deposit ratio