Brokered CDs at Risk Increase to $772 Million in Second Quarter 2020

In the first quarter of 2020, total brokered deposits with CUSIPs less than $250,000 decreased to $405 billion from $443 billion the previous quarter. However, the number of banks with these brokered CDs that are ranked below investment grade by IDC Financial Publishing (IDCFP), rose to 39 from 35 last quarter, and the value of those banks’ issued CDs rose to $772 million from $631 million. Currently, brokered CDs less than $250,000 in at-risk banks are again rising.

While the total number of financial institutions issuing brokered CDs in June 2020 was around half the number from 2008 and 2009, the institutions ranked 125 or higher (investment grade) were 1,000, close to the average number of highly-ranked institutions from 2009. Financial institutions ranked less than 125 (below investment grade) peaked at 1,011 in 2009Q1 and fell to a low of 30 in 2019Q3.

The values for brokered CDs and the n umber of financial institutions issuing these CDs are calculated by IDCFP using the total of brokered deposits less reciprocals and uninsured brokered CDs. This residual is then required to be less than the change in time deposits to qualify as brokered CDs less than $250,000.

IDCFP has been publishing institution ranks for over 35 years. Users of our ranks have determined institutions ranked 125 or higher to be investment grade, while those ranked below 125 are below investment grade. IDCFP ranks range from 300 (highest) to 1 (lowest). Our ranks are also sub-categorized into Superior (rank of 200 to 300), Excellent (rank of 165 to 199), Average (rank of 125 to 164), Below Average (rank of 75 to 124), Lowest Ratios (2 to 74) and Rank of 1.

Due to the inverted yield curve in 2018-19 and the Coronavirus in 2020 with its associated declining yields on U.S. Treasuries, the number of banks issuing brokered CDs was reduced. In 2020 we have seen an increase in the value of brokered CDs represented in institutions ranked below investment grade, which may lead to increased risk to CD portfolios. However, the value is dramatically less than was experienced in 2008 and 2009. As in the past, IDCFP ranks are critical for investors going forward to monitor the strength of financial institutions during periods of risk or growth.

Table I

Value of CDs in Banks Issuing Brokered CDs*

Banks Ranked 125 and Higher and Less Than 125

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John E Rickmeier, CFA, President,

Robin Rickmeier, Marketing Director