Clarifying Non-Brokered Deposit Role

I would like to clear up some misconceptions about Qwickrate and its non-brokered CD marketplace that were presented in April 5th article, "Redefining Brokered Funds, and What It Means for Community Banks."

It was stated and implied several times that Qwickrate investors are institutional depositors looking for "high rate CDs." The facts demonstrate otherwise.

• Year-to-date, deposits placed through Qwickrate have been, on average, 47 basis points below the national rate cap. Not what the market would consider a "high-rate" CD. The FDIC is well aware of the average CD rates of deposits placed in the Qwickrate marketplace as this information has been voluntarily provided to them on several occasions for the study report.
• Qwickrate is a closed, institutional-only marketplace. The stable base of Qwickrate institutional investors who are placing deposits prioritize deposit insurance over deposit rates. They are segmenting their funds into increments of $250K or less for FDIC-insured deposits, and then placing these deposits in multiple banks across the country at the rates advertised and posted by the banks themselves in the Qwickrate marketplace. These institutional investors make their own investment decisions and there is a direct relationship between the CD issuer and the investor.
• On their own, these investing institutions can individually research published bank rates and purchase CDs outside of the Qwickrate marketplace. They subscribe to Qwickrate for the convenience of having one place to directly connect with more than 3,000 members to view rates and place FDIC-insured deposits and for the automated tools that streamline the communications for them.

It was stated that Qwickrate does not "technically" meet the definition of a brokered deposit. Qwickrate absolutely does not in any way meet the definition of a brokered deposit. Rather, Qwickrate meets the FDIC definition of a non-brokered direct deposit listing service. In order to meet this definition, a listing service must:

• Be compensated solely by subscription fee or listing fee...NOT a transaction fee.
• Not be paid on the basis of the number or dollar amount of deposits made or accepted.
• Perform no service other than providing information concerning the availability of deposits or the transmission of messages between parties and must not attempt to steer funds toward particular institutions.
• Not be involved in placing deposits.

The facts are that brokered deposits, such as the deposit swapping product that you reference, do involve a third party, or intermediary, who determines where the deposits are placed and who handles the transaction, and they do charge fees based on the number or dollar amount of the transaction itself. There are very good reasons why there are limitations associated with brokered deposits. The bottom line is that Qwickrate is a non-brokered direct deposit listing service by design — there is no gray area.
This article implies that listing service deposits, like Qwickrate, are volatile and are escaping scrutiny. This is far from the truth. Qwickrate has served as a stable and reliable non-brokered resource for community banks for the past 25 years. We have always encouraged our subscribers to establish appropriate funding concentration levels, and, like any other funding source, regulatory agencies do review and evaluate these concentrations in safety and soundness exams. In addition, financial institutions are required to list non-brokered deposits obtained through a deposit listing service as a memorandum item on the call report.

So let's really put this into perspective with some hard numbers. According to the FDIC 12/31/2010 call report data, there are $9.42 trillion in total deposits in the banking system with $1.98 trillion of that number representing time deposits. Of the $1.98 trillion, $572 billion are brokered deposits. Qwickrate deposits represent approximately $25 billion or 0.27% of total deposits and 1.38% of total time deposits in the banking system. It's puzzling why Qwickrate was clearly singled out in this article when we represent such a small percentage of the overall deposit market.

In the end, a bank's funding should be about appropriate diversification. Each funding source has a role in a diversified funding strategy that contributes to the overall health of an institution. Qwickrate, and the non-brokered deposits generated therein, remains a critical and valuable source of funding for community banks.

Shawn O'Brien
President
Qwickrate