As banking faces an era of rising interest rates, fintech disruption, and regulatory pressure, one question has taken center stage: are brokered deposits in banking still viable—or a ticking time bomb? For decades, brokered deposits were seen as a red flag. They signaled higher risk appetites, possible liquidity issues, and regulatory scrutiny. But today’s financial landscape is more complex. Thanks to banking-as-a-service (BaaS), middleware platforms, and real-time fund transfers, even so-called “core deposits” can turn hot in an instant.
Understanding the nuances of deposit classifications—and what makes money sticky or flighty—is essential for banks, fintechs, and regulators alike.
What Are Brokered Deposits in Banking?
At the most basic level, a brokered deposit is any deposit that comes through a third-party broker instead of directly from a customer. This concept originated in the 1980s, where deposit brokers would call banks offering to place large sums—often on behalf of institutions or wealthy clients—in return for attractive interest rates.
Because these deposits were seen as price-sensitive and mobile, regulators flagged them as risky. When a bank relies heavily on brokered deposits, its funding becomes more vulnerable to market swings. If capital levels fall, the bank might be forced to offload these deposits quickly—creating a liquidity crisis.
How Regulation Shapes Deposit Strategy
The U.S. regulatory framework uses a bank’s capital ratio to determine how it can use brokered deposits. If a bank is well-capitalized, it faces few restrictions. But if capital falls below a certain threshold, those deposits become a liability. That’s why banks monitor their ratios closely—falling below could mean cutting off a key source of funding.
Section 38 of the Federal Deposit Insurance Act also limits how much interest banks can offer on deposits based on their capital status. The goal is to prevent troubled banks from overpaying for funds and taking excessive risks to cover those costs.
Why This Matters in Today’s Banking-as-a-Service World
Fast forward to the fintech era. Neobanks and digital wallets have redefined how consumers interact with their money. These platforms often rely on sponsor banks to hold customer funds—funds that look, from the regulator’s view, a lot like brokered deposits.
But here’s the wrinkle: fintech platforms like Chime aren’t offering high interest rates. They win customers through features like no-fee overdraft, early direct deposit, and sleek mobile interfaces. Their value isn’t tied to rate shopping—so are their deposits really “hot”?
That’s the debate. Regulators have begun to reconsider how brokered deposits are defined. In 2020, the FDIC created a “primary purpose exception” for certain fintechs. If their main business isn’t placing deposits, they may avoid the brokered designation. Still, this gray area is far from settled.
Middleware Platforms Make Deposits More Mobile
New infrastructure makes it easier for fintechs to move money between banks. For example, platforms like Treasury Prime now allow clients to spread accounts across multiple banks—or switch partners with minimal friction.
From the fintech’s view, that’s flexibility. From the bank’s view, it’s a concentration risk. If one fintech holds a large share of a bank’s deposits, and that fintech decides to leave, the bank faces sudden outflows. That’s brokered behavior—even if the deposits aren’t technically classified as such.
SVB, Silvergate, and the Reality of Concentration Risk
The downfall of Silicon Valley Bank (SVB) and Silvergate spotlighted these concerns. In both cases, large clients moved massive sums overnight. These weren’t retail customers slowly trickling away. They were sophisticated businesses with fast-moving needs.
Whether or not these were brokered deposits by definition, they behaved like them in practice. That’s why some experts are calling for a rethinking of how we assess deposit risk—not just by regulatory labels, but by how deposits actually move.
The Case for Diversification
One solution? Diversification. Rather than concentrating deposits in a single sector or fintech relationship, banks can spread their exposure. Some are even exploring new verticals, like HOAs (homeowner associations), which hold steady escrow balances and rarely switch providers.
This strategy mirrors the advice given post-SVB collapse: don’t rely on one segment, one product, or one partner. Stable, sticky deposits come from understanding your customers’ behavior—not just their balance sheets.
Retail Deposits: Sticky but Not Simple
Retail deposits are often seen as safe and predictable. The average consumer keeps just over $1,200 in a checking account, with little volatility. But even here, fintechs are making waves.
Platforms like HMBradley, now partnered with a bank above the $10B asset threshold, offer high-yield savings linked to customer behavior. They’re building ecosystems around financial wellness—not just rate competition. That creates stickier relationships, even in a rate-sensitive environment.
But the infrastructure matters too. HMBradley recently moved to a modern core system powered by Thought Machine. That’s a crucial upgrade. In any BaaS relationship, the quality of the ledger—how money is tracked, reconciled, and reported—can determine resilience during crisis.
Regulators Need Better Tools
Current call reports split deposits into “brokered” and “non-brokered,” or “core” and “non-core.” That’s increasingly insufficient. Regulators need more granular categories to account for:
- Fintech-originated deposits
- Sweep accounts and FBO arrangements
- Deposits from middleware platforms
More transparency here would allow banks and watchdogs to better assess risk—and design strategies accordingly.
What’s Hot and What’s Not
So, what kinds of deposits are considered “hot” today?
Hot:
- Deposits that can be moved with one click
- Large uninsured operating accounts
- Funds routed through middleware and spread across banks
Not Hot:
- Brokered CDs with long-term lockups
- HOA and escrow accounts with legal holding requirements
- Fintech deposits with no incentive for customer movement
Ultimately, the “heat” of a deposit isn’t about how it’s classified—it’s about how fast it can flee.
Reimagining the Future of Deposit Strategy
Banks must rethink how they attract, assess, and manage deposits. That starts with asking:
- What’s the customer’s reason to stay?
- What systems control how money moves?
- How diversified are our sources of funding?
The age of lazy deposits is over. Customers have choices. Banks need to offer real value—through features, transparency, and ecosystem-building—to earn loyalty. Fintechs, too, must reassess their models, especially as VC subsidies dry up.
What remains clear is this: brokered deposits in banking aren’t going away. But how we define them, manage them, and regulate them must evolve—before the next liquidity crunch makes the question even hotter.
