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FDIC study: Congress should not amend, repeal brokered deposit reg

In a Dodd-Frank Act-mandated study submitted to Congress July 8, the FDIC said the brokered deposit statue continues to serve an essential function and Congress should not amend or repeal it.

“During the most recent crisis, the statute has, in large measure, prevented failing banks from increasing their brokered deposits, and, therefore, from taking on greater risk in an effort to grow out of trouble and prevented greater FDIC losses when banks fail,” the study said. “The statute is also an important component of prompt corrective action … requiring regulators and banks to take corrective measures to confront problems.”

The study noted liquidity problems if a bank becomes less than well capitalized and does not reflect the use of the acquired fund. The FDIC continues to have serious concerns about brokered deposits since research from the study displayed a correlation: in general, deposit levels increase, the probability that a bank will fail also  increases.

“Conversely, research shows that, generally, banks' increasing reliance on core deposits reduces the chance of failure and reduces the [Deposit Insurance Fund's] losses when banks do fail,” the study said. “Consequently, statistical studies support the view that the concepts of core and brokered deposits, as currently defined, remain useful in evaluating and predicting bank performance.”

Click here to read the full study.

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