Magazine article American Banker

Money Brokers Imperil Insurance System, Gray Says: Bank Board Eyes Limit on Growth of Deposits

Magazine article American Banker

Money Brokers Imperil Insurance System, Gray Says: Bank Board Eyes Limit on Growth of Deposits

Article excerpt

WASHINGTON -- The mushrooming growth of the deposit brokering system is "already jeopardizing the federal deposit insurance system," Edwin J. Gray, chairman of the Federal Home Loan Bank Board, said Tuesday.

To allow "this spreading cancer" on the insurance system to continue unchecked, he said, could seriously threaten the finite resources of the Federal Savings and Loan Insurance Corp. and the Federal Deposit Insurance Corp. Mr. Gray was addressing the annual lawyers seminar of the National Council of Savings Institutions.

Recently, the Bank Board and FDIC proposed limited deposit insurance coverage to $100,000 per broker per bank Money brokers act as conduits between banks with excess funds and those needing deposits, breaking large deposits into $100,000 packages that are fully insured by the FDIC and FSLIC.

The Bank Board chairman's stern warning regarding the effect of unfettered growth of brokered deposits on the deposit insurance system came just three days before that agency is expected to propose some radical approaches to deal with the problem.

The Bank Board staff, is considering thrift industry sources, is considering asking the board to propose at its open meeting Friday a 5% per quarter limit on growth of all deposits for all FSLIC-insured institutions.

If an association wanted to expand beyond those limits, it would have to apply to its regional supervisory agent for permission, sources said.

The staff may even ask the Bank Board to require the inclusion in the application of business plans that would tell where the money is coming from and where it would be invested.

Also at the open meeting, the agency is expected to formalize earlier instructions to regional directors that associations with less than 3% net worth be banned from taking brokered funds.

In his speech, Mr. Gray acknowledged that there is a "flood of horror stories" at the agency regarding misuse of brokered funds. …

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