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Wholesale
Funding
As banks search for additional sources of liquidity, they
should consider all alternatives. Traditionally deposito-
ries have used the FHLB, and to a lesser extent CD listing
services, as their primary wholesale funding vehicles.
However, one additional source that is often overlooked
is brokered CDs, also known as DTC Certificates of
Deposit (DTC Being an acronym for Depository Trust
Company). Unlike CDs that are sold by banks on listing
services, brokered CDs are typically issued in large block
sizes and sold by a broker to both retail and institutional
depositors nationwide. These CDs all settle electroni-
cally via the Depository Trust Company, hence the ubiq-
uitous reference to “DTC brokered deposits”. Brokered
CDs are available for:
• Terms of 1-month up to 30-years
• Bullet, callable, step-up callable, and fixed to float
structures
• FDIC insured depositories considered “well capitalized”
per FDIC regulatory guidelines are eligible
A form of unsecured wholesale funding, brokered
CDs offer significant benefits relative to other funding
alternatives:
• Brokered CDs are unsecured; there is no collateral
posting or stock purchase requirement
• Brokered CDs are non-redeemable by the depositor
except in the event of death or adjudication of insanity
• Brokered CDs are settled electronically via the Deposi-
tory Trust Company (“DTC”) which creates significant
operational efficiencies
• Brokered CDs are typically issued in blocks of $1MM or
greater and maintained in aggregate Master CDs as op-
posed to maintaining individual purchases when issuing
through a CD listing service
• Documentation to issue brokered CDs is very simple;
no need to maintain separate customer files for each
depositor
The grid below summarizes different aspects to the
FHLB, CD Listing Services, and Brokered CDs:
Wholesale Funding –What to Know
About the Brokered CD Market
Collateral
Secured
Prepayable
by Funder
Documentation
Complexity
Annual Exams
Block Funding
FHLB Advances:
Yes
No
High
Yes
Yes
CD Listing
Services:
No
Yes*
Medium
No
No
Brokered CDs
No
Death /
Adjudication
Low
No
Yes
*Typically carries penalty of 3-6 months
As we usher in 2015, consider brokered CDs as an additional source of wholesale funding to meet your institution’s
changing liquidity and risk management needs.
