An academic study conducted by Auburn University Harbert College of Business researchers for the Utah Center for Financial Services demonstrates that brokered deposits represent a secure source of funding for banks.

The center engaged Harbert College's Lowder Eminent Scholar in Finance James Barth and his doctoral student colleague Yanfei Sun to review the impact and risk of relying on brokered deposits, focusing on the past decade. In their study, Barth and Yanfei examined the safety of a range of brokered deposits during and after the Great Recession. They also reviewed all the major reports and studies regarding brokered deposits completed by other institutions.

"Brokered deposits have proven to be a stable and reliable source of deposits," said Barth, a former bank regulator. His work and numerous publications, focused of financial services, are well known and highly regarded. He believes the FDIC should update its policies regarding brokered deposits and recognize the stability of this form of funding as well as the lower sourcing cost and accessibility.

Brokered deposits generally involve a third party in the placement and are now issued by many banks to diversify their funding.

Barth intensively examined allegations made by the FDIC and others that brokered deposits were the cause of the Great Recession and other economic crises. Barth scrutinized 59 studies and “found no direct causal relationship between brokered deposits and bank failures.” The full study and summaries are available at Eccles.link/barth-report.

Barth believes most deposits classified by the FDIC as “Brokered Deposits” are now a well-understood and accepted source of funds that help banks innovate business models and offer convenience and return for customers. He found that these deposits help diversify funding and add to the soundness of well-run financial institutions. "We are pleased that Dr. Barth and Yanfei Sun developed this compelling study that should be helpful to bankers, regulators and other decision-makers, as well as academics and the media. It will help them understand and recognize that brokered deposits can be stable and efficient funding for banks to provide safe and convenient choices for consumers," said Al Landon, director of the Utah Center for Financial Services, who is an adjunct professor at the David Eccles School of Business, a former banker and CPA.

About the Research

James Barth is the Lowder Eminent Scholar in Finance in Auburn University’s Harbert College of Business, a Senior Fellow at the Milken Institute, and a Fellow at the Wharton Financial Institutions Center. He has been a visiting scholar at the U.S. Congressional Budget Office, Federal Reserve Bank of Atlanta, Office of the Comptroller of the Currency and the World Bank. Yanfei Sun is completing her doctoral studies in the Harbert College.

About the Utah Center for Financial Services

The Utah Center for Financial Services (UCFS) funds research and is focused on the dual-banking system, specifically the role of state-chartered banks in the United States. UCFS is a partner with the Lassonde Entrepreneur Institute and the David Eccles School of Business.