As policymakers consider reforms to the three-decade-old brokered deposit rules, they should “think about what the appropriate guardrails are to mitigate the challenges that the brokered deposit law was put into place to address,” and how best to apply those guardrails to a modern banking system, said Mary Fowler, CEO of Peoples Bank in an American Banker op-ed today.
Fowler—who leads a $207 million institution headquartered in Magnolia, Arkansas—emphasized that critics of such reforms often operate under the “false notion that classic brokered deposits are expensive and prone to flight.” In reality, “many community bankers know from experience that a local retail deposit can be costlier and less sticky than a brokered deposit,” she said.
“It is important that community banks have a diverse set of funding sources. I know it’s critical for my bank. We operate in a low-and-moderate income community that doesn’t have the deposit base to meet all of the local funding needs,” Fowler wrote. “Because of this, we rely on a mix of core, brokered and wholesale funding which for us is both cheaper and more predictable. Access to diverse sources of funding allows us to serve our community.”
While “banks should not be allowed to take on unsafe and unsound liquidity risk,” Fowler called for a regulatory framework that would not penalize healthy banks for turning to outside or modern sources to fund their liquidity needs, but rather focus on “how a bank is managing itself, given its unique business model and customer base.” Read the op-ed.