The Federal Deposit Insurance Corp. issued guidance Tuesday instructing banks to be wary of the risks of brokered deposits and other forms of noncore funding.
Responding to the failures of institutions that had relied on brokered funds and other noncore sources, such as securitization and wholesale funding, the FDIC outlined the risk management steps needed to ensure a bank's liquidity position stays intact.
The guidelines called on banks to "augment" traditional measures of adequate liquidity, like the ratio of loans to deposits, with more detailed tests of funding sources, such as a pro forma cash flow analysis; establish contingency plans for events that can suddenly squeeze a bank's liquidity; and follow previous guidance on restrictions for holding brokered deposits.
Regulators have already heightened their scrutiny of institutions that have turned away from traditional funding mechanisms, mainly retail deposits, to support loan portfolios that have been pummeled in the declining real estate market.
Three failures this year — those of ANB Financial, IndyMac Federal Bank, and Columbian Bank and Trust Co., which was closed last week — have been blamed in part on a high concentration of brokered funds.