Insured Brokered CDs to Accelerate 140% to over $1 Trillion by Year-End 2022

The Number of Financial Institutions Issuing Brokered CDs is Accelerating

The number of institutions issuing brokered CDs has grown at an accelerated rate in recent quarters. Banks and savings institutions rose from a plateau of 1,300 in 2017 and are estimated to reach 1,840 by year-end 2019. Credit unions issuing brokered CDs also increased from 2 in 2015 to a plateau of 29 in 2017. They are expected to reach 150 by year-end 2019. At IDCFP, we project this trend to continue, and the number of banks and credit unions to reach 2800 by the end of 2022 (see Chart I).

Chart I

The Value of Brokered CDs per Institution is Growing

The value of brokered CDs issued per financial institution grew exponentially over the last two decades, from an average of $65 million in 1998 to $254 million in the 4th quarter of 2018. This growth was due to an increase in government insured levels to $250K, bank mergers, and strong growth in loans for those core banks issuing brokered CDs.

Each quarter, IDCFP divides the total reported brokered CDs less than $250K by the total number of financial institutions issuing these CDs. This determines the average value of insured brokered CDs per financial institution. In the 4th quarter of 2008, the average value peaked at $140 million, and then fell to $129 million in 2009 during the banking crisis. Since then, the value per institution has risen, reaching a record average of $254.2 million in the 4th quarter of 2018 (see Chart II). The increase in value of brokered CDs per institution was $10.6 million per quarter over the past year. We forecast this dollar growth will be $7.4 million per institution per quarter over the next four years.

Chart II

Growth in DTC Brokered CDs Forecast at $40 Billion a Quarter

Another forecast we are making is that the number of banks, thrifts and credit unions with outstanding brokered CDs to be 1,679 at the end of the 1st quarter of 2019. As tax cuts, deregulation, infrastructure spending, and other government initiatives drive increased spending, GDP growth is expected to expand 2.5% to 3% a year. This, in turn, will create bank lending and cause an increased number of financial institutions to issue more CDs. Currently, outstanding brokered CDs account for 26.4% of time deposits, up from 14.7% in the 4th quarter of 2008. This percentage of outstanding brokered CDs to time deposits has grown consistently each quarter from 2008 to 2018 and is projected to reach 35% by year-end 2022.

We estimate the average of brokered CDs less than $250,000 per issuing financial institution will rise about $7.4 million a quarter and reach $373 million by the end of 2022. Also, the number of financial institutions issuing brokered CDs could expand from 1,591 to 2,800. In the past year, reported DTC brokered CDs rose $40 billion total per quarter, and in January 2019 this trend continued, with $13 billion alone reported in that month.

Based on these reports and forecasts in Charts I and II, our estimate of DTC brokered CDs outstanding will increase 140% from the $404 billion balance at year-end 2018, to reach over $1 trillion by year-end 2022, which is an average increase of $40 billion per quarter (see Chart III).

Chart III

For further information or to view our products and services please visit our website www.idcfp.com or contact us at 800-525-5457 or info@idcfp.com.

John E Rickmeier, CFA, President, jer@idcfp.com

Robin Rickmeier, Marketing Director