DEFINITION of 'Brokered Deposit'

A brokered deposit is a deposit made to a bank by a third-party deposit broker. A deposit broker is a person who places other peoples' deposits with insured institutions. The brokered deposits are usually large-denomination and are often sold by a bank to a brokerage, which then divides it into smaller pieces for sale to its customers. Brokered deposits make up one of two types of deposits that make up a bank's deposit liabilities. Core deposits - such as deposits to checking accounts, savings accounts and certificates of deposit made by individuals - are the other key component of a bank's deposits.

BREAKING DOWN 'Brokered Deposit'

Under FDIC rules, only well-capitalized banks can solicit and accept brokered deposits. Adequately capitalized ones may accept them after being granted a waiver, and undercapitalized banks cannot accept them at all. By accepting brokered deposits, a bank can gain access to a larger pool of potential investment funds and improve its liquidity. This improved liquidity within the banking system often gives banks the capitalization they need to make loans to businesses and the public. The bank can also save money by accepting brokered deposits compared to handling an equivalent dollar amount of numerous smaller deposits. Individuals can elect to participate in brokered deposit transactions as they will usually pay a higher rate of interest than traditional deposits.

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