BROKERED DEPOSITS Meaning and
Definition
-
Brokered deposits refer to funds deposited in a financial institution, such as a bank or credit union, that are acquired through a broker or intermediary. These funds are typically managed by a third-party organization referred to as a broker or a deposit broker.
The term "brokered" implies that the intermediary plays a crucial role in connecting individuals, businesses, or organizations that have excess funds with financial institutions that require additional deposits. In this process, the broker acts as the facilitator, matching the depositors' funds with suitable institutions, often for a fee or commission. The broker may have access to a wide network of potential depositors and financial institutions, enabling them to negotiate favorable terms and rates for both parties.
Brokered deposits provide a convenient way for financial institutions to increase liquidity and access additional funding to meet their lending and operational needs. These deposits can be particularly beneficial for smaller or less established institutions that may have difficulty attracting deposits directly from customers.
It is worth noting that brokered deposits are subject to different regulatory treatment compared to direct deposits or deposits obtained through traditional means. Regulatory agencies often impose specific restrictions on financial institutions regarding the use of brokered deposits. These restrictions aim to ensure that the institutions manage their funding sources prudently and minimize potential risks associated with relying heavily on brokered funds.
Etymology of BROKERED DEPOSITS
The term "brokered deposits" originated from the combination of the words "broker" and "deposits".
1. Broker: The word "broker" dates back to the Old French word "broceur" or "brokier", meaning "small trader". In Middle English, it transformed into "brocour" and eventually became "broker" in modern English. A broker is someone who acts as an intermediary and facilitates transactions between a buyer and a seller.
2. Deposits: The word "deposit" originates from the Latin word "depositum", which means "a deposit, a lay or uplaying of money". It evolved in Old French to "deposé", which referred to "a deposit or pledge". Later, in Middle English, it became "deposyte" and eventually "deposit" in modern English.
