Bank regulators are beginning to worry that small banks, intent on growing assets, are looking for funds in all the wrong places.

Recent reports by the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency found that as loan demand outstrips deposit growth, banks with assets of less than $1 billion are becoming increasingly reliant on high-cost funding, including subordinated debt, Federal Home Loan Bank advances, and purchased federal funds.

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