[Re "As Regs Pinch, Banks Cool to Brokered Deposits," Feb. 18 Community Banking supplement] It would be impossible to give you a full presentatation, so let me just make some fundamental points for your consideration.

1. The reason a brokered deposit market exists is because there are not enough deposits in the banking system to finance the asset side of the balance sheet. Period. If this is not understood then there is no way to convince anyone that brokered deposits were not created for the sinister purpose of financing bad credits or making bad investments.

2. The hole (about 30% of total liabilities) has been financed by wholesale funding, of which brokered deposits are just one of many tools available to banks such as: advances from the FHLB system; repurchase agreements; borrowing agreements with correspondent banks.

3. Banks do not go broke taking deposits.

4. Banks go broke by making bad investment or lending decisions, or due to unforeseen economic crisis such as the one we are experiencing now.

5. Regulators will not be successful in curtailing deposit acquisition by banks. The market will take care of that.

6. The only way to lower or decrease the chances that a bank will get in financial trouble is by making sure the quality of its assets is good.

7. Brokered deposits are cheaper than a lot of other funding alternatives, sometimes by 1% per annum.

Jorge Coloma, Managing director
Coloma Group, Miami

Editor's note: Coloma Group is an investment adviser specializing in certificates of deposit.

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