Brokered Deposits and Share Certificate Blocks

Credit unions may seek wholesale funding, usually to increase liquidity, through brokered deposits and share certificate blocks.

Brokered deposits are usually third-party time deposits acquired through a deposit broker. The broker may sell interest (portions) in the deposit to third parties. Similarly, share certificate blocks are sold to a broker, who in turns sells an interest to third parties.

The use of these wholesale funding vehicles is popular through insured cash sweeps, as investors seek to minimize risk of holding more cash than is covered by deposit insurance. The investor ultimately has one fully-insured account, and multiple financial institutions participate in the process through buying deposits, selling deposits, or in a reciprocating relationship.

Due Diligence

Credit unions offering brokered wholesale deposits or share certificate "blocks" to brokers or other third-parties must comply with NCUA regulations §§ 701.32(b), Limitations, and 745.2(c), Records.

As an example, LID credit unions could issue one large share certificate to a broker that sells portions of the certificate to other institutions to stay under the $250K insurance limit, but the credit union is unaware of the investors.

Credit unions offering insured cash sweeps report a net presentation of funds under GAAP. As the credit union is an agent placing funds in other institutions, the risk of loss transfers from the agent to the institution receiving the funds. Customer agreements should inform the original depositor of the potential risk of loss in the transfer of funds to other institutions. Credit unions receiving swept funds include the funds in their insured deposits.

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