Alexandra Barrage, a partner in Troutman Pepper’s Corporate Practice Group, was quoted in the August 23, 2024 Bank Director article, “Brokered Deposits Rule Threatens to Upend Bank Balance Sheets.”
“In the worst case, these [newly designated brokered deposits] will have to get offloaded in a way that potentially puts those banks at even greater liquidity risk, especially to the extent that they have a higher concentration,” says Alexandra Steinberg Barrage, a partner at Troutman Pepper and former FDIC staffer.
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“More attention to the riskiness of all kinds of deposits is a good thing and mitigation of that risk, from a bank perspective, is a positive thing,” says Steinberg Barrage. “But only having brokered versus non-brokered [does not get] that nuanced result that you ought to be getting, based on how banks think about each of these arrangements.”
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“What I worry about if [the rule] gets completely overhauled is a world where banks are like ‘I’m not going to touch brokered deposits. It’s not worth it for me anymore,'” Steinberg Barrage says.
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Operationally, Steinberg Barrage says bank boards and executives should examine the rule against their banks’ deposit arrangements to identify what funds may need to be reclassified as brokered against total deposits and total liquidity, to better understand the liquidity, reporting and capital implications of the rule. She also suggests that banks communicate these figures to their examiners. Finally, she recommends banks revisit their risk assessment and appetite in light of their potential brokered deposit concentration and conduct a scenario analysis and liquidity stress test to explore what could happen if these newly brokered deposits needed to roll off the balance sheet.
Steinberg Barrage encourages community banks to submit comments to the FDIC and consider participating in the two outstanding requests for information.
