Insured Brokered CDs to Accelerate 136% to $1 Trillion by Year-End 2022

The Number of Financial Institutions Issuing Brokered CDs Continues to Accelerate

The number of institutions issuing brokered CDs has grown at an accelerated rate in recent quarters. Banks and savings institutions rose from a plateau of 1,300 in 2017 and increased to reach 1,497 in the 1st quarter of 2019. Credit unions issuing brokered CDs also increased from 2 in 2015, to a plateau of 29 in 2017, and reached 136 in the 1st quarter of 2019. Total financial institutions with CUSIPs rose another 92 firms as of May 20th, 2019. At IDC Financial Publishing (IDCFP), we project this trend to continue, and forecast the number of banks and credit unions to reach 2,500 by the end of 2022 (see Chart I).

Chart I

The Value of Brokered CDs per Institution is Also Accelerating

The value of brokered CDs issued per financial institution grew exponentially over the last two decades, from an average of $65 million in 1998 to $260.8 million in the 1st quarter of 2019. This growth was due to an increase in government insured levels to $250K, bank mergers, and strong growth in loans for those core banks issuing brokered CDs.

Each quarter, IDCFP divides the total reported brokered CDs less than $250K by the total number of financial institutions issuing these CDs. This determines the average value of insured brokered CDs per financial institution. In the 4th quarter of 2008, the average value peaked at $140 million, and then fell to $129 million in 2009 during the banking crisis. Since then, the value per institution has risen, accelerating in the last 2 years to reach a record average of $260.8 million in the 1st quarter of 2019 (see Chart II). The increase in value of brokered CDs per institution was $8.2 million per quarter over the past year. We forecast this dollar growth will be $9.2 million per institution per quarter to year-end 2022, to reach a record average of $400 million (see Chart II).

Chart II

Growth in Outstanding DTC Brokered CDs Forecast at $40 Billion a Quarter

Combining the above forecasts indicates two things: 1) The number of banks, thrifts and credit unions with outstanding brokered CDs to exceed 1,725 by the end of the 2nd quarter of 2019 and 2,500 by year-end 2022. 2) We estimate the average of brokered CDs less than $250,000 per issuing financial institution will rise about $9.3 million a quarter and reach $400 million by the end of 2022.

As tax cuts, deregulation, infrastructure spending, and other government initiatives drive increased spending, GDP growth is expected to expand 2.5% to 3% 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 account for 25.8% of time deposits, up from 14.7% in the 4th quarter of 2008. This percentage 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 2022.

Our estimate of DTC brokered CDs outstanding will increase 135% from the $426 billion balance at 1st quarter-end 2019, to reach $1 trillion by year-end 2022 (see Chart III); An average increase of $38 billion per quarter, up from $29.6 billion per quarter in the past year.

Chart III

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John E Rickmeier, CFA, President,

Robin Rickmeier, Marketing Director