The use of brokered deposits and its relation to bank failure: the case of industrial banks

As a result of the Great Recession of 2007-2009, the financial services industry came under intense government scrutiny that resulted in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). As part of Dodd-Frank, the Federal Deposit Insurance Corporation (FDIC) was required to conduct a study on the use of brokered deposits and its effect on insurance premiums to be completed by July 2011. Across the banking sector, industrial banks are the primary users of brokered deposits and yet no industrial banks failed during the Great Recession. This thesis reviews the literature on industrial banks to help explain how this group of banks endured the effects of the Great Recession. A select data set from FDIC Call Reports will show how the existing regulation of brokered deposits provided the correct incentives to deter moral hazard issues that cause bank failures.