07.31.24

‘Hot Money’ That Surged at Banks Gets Tougher Treatment Under FDIC Proposal

by: Katanga Johnson

The Federal Deposit Insurance Corp. (FDIC) unveiled a measure to strengthen regulation of U.S. banks’ brokered deposits, in response to last year’s industry turmoil. Known as hot money, the funds collected by brokers surged past $1 trillion in 2023, a year that saw three of the four largest bank failures in U.S. history. The influx helped lenders compensate for some of the hundreds of billions of deposits that rushed out their doors. Regulators have long been concerned about brokered deposits because troubled banks sometimes use them as a quick fix to bolster their books. But the deposits are often expensive, due to interest rates that can exceed 5%, and they tend to attract customers who don’t stick around if the bank comes under stress.

Read the full article on Bloomberg