Growth of Brokered CDs

The value of brokered CDs issued by a financial institution grew exponentially over the last two decades, from an average of $65 million in 1998 to $240 million in the 2^nd quarter of 2018. This growth was due to an increase in insurance premiums, bank mergers, and strong growth in loans for those core banks issuing time deposits.

Each quarter, IDCFP uses the estimate of all brokered CDs less than $250K and divides it by the total number of financial institutions issuing these CDs to determine the average value of insured brokered CDs per financial institution. In the 4^th quarter of 2008, the average value peaked at $140 million, and then fell to under $129 million in 2009 during the banking crisis. Since then, the value per institution has risen, reaching a record average of $240.2 million in the 2^nd quarter of 2018 (see chart below).

The growth in the quarterly value of brokered CDs per issuing bank and credit union accelerated from $2 million per quarter in 2016, to $12 million in the 2^nd quarter of 2018. This quarterly value is expected to grow by $16 million in the 3^rd quarter, creating an estimated average of $256 million per financial institution by September 30^th, 2018.

Brokered CDs Forecast to Accelerate

The number of banks, thrifts and credit unions with outstanding brokered CDs was 1,440 at the end of the 2^nd quarter of 2018. As tax cuts, deregulation, infrastructure spending, and other government initiatives drive increased spending, GDP growth is expected to expand 3% or more a year. This, in turn, will create bank lending and cause an increased number of financial institutions to issue more CDs. Currently, outstanding brokered CDs currently account for 25.2% of time deposits, up from 14.7% in the 4^th quarter of 2008. This proportion of outstanding brokered CDs to time deposits has grown consistently each quarter from 2008 to 2018 and is projected to reach 35% by year-end 2020.

IDCFP estimates the average of brokered CDs less than $250,000 per financial institution will rise to $400 million by 2020 (see chart below), and the number of financial institutions with brokered CDs could expand from 1,440 to 1,800. Based on this forecast, the estimate of DTC brokered CDs would increase substantially to $720 billion in 2020, a 108% increase in the reported balance of $345.9 billion in the 2^nd quarter of 2018.

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John E Rickmeier, CFA, President, jer@idcfp.com

Robin Rickmeier, Marketing Director