Banking Review2006 VOLUME 18, NO. 2
The Liability Structure of FDIC-Insured Institutions:
Changes and Implications (page 1)
by Christine M. Bradley and Lynn Shibut
As asset growth has outstripped core deposit growth in recent years, banks have adapted their funding
strategies. This article describes the changes that have occurred, discusses possible future changes in
bank liability structure, and explores the regulatory issues related to these changes (including the
areas of market discipline, liquidity risk examination, deposit insurance, and failure resolution).
The Resolution Trust Corporation and Congress, 1989–1993
PART I: 1989–90 (page 38)
by Lee Davison
This is the second of two Banking Review articles on the legislative history of the Resolution Trust
Corporation. The legislative history of the establishment of the RTC, “Politics and Policy: The
Creation of the Resolution Trust Corporation,” appeared in Banking Review 17 No. 2 (2005). The
continuation of that legislative history, covering the years 1989–1993, is presented in two parts:
Part I appears here; Part II will follow in an upcoming issue.
The views expressed are those of the authors and do not necessarily reflect official positions of the Federal Deposit Insurance
Corporation. Articles may be reprinted or abstracted if the FDIC Banking Review and author(s) are credited. Please provide the
FDIC’s Division of Insurance and Research with a copy of any publications containing reprinted material.
Chairman Sheila C. Bair
Director, Division of Insurance Arthur J. Murton
and Research
Deputy Director Donald Inscoe
Managing Editor Jack Reidhill
Editorial Committee Christine E. Blair
Valentine V. Craig
Rose M. Kushmeider
Publication Manager Geri Bonebrake
The Liability Structure of FDIC-Insured Institutions:
Changes and Implications (page 1)
by Christine M. Bradley and Lynn Shibut
As asset growth has outstripped core deposit growth in recent years, banks have adapted their funding
strategies. This article describes the changes that have occurred, discusses possible future changes in
bank liability structure, and explores the regulatory issues related to these changes (including the
areas of market discipline, liquidity risk examination, deposit insurance, and failure resolution).
The Resolution Trust Corporation and Congress, 1989–1993
PART I: 1989–90 (page 38)
by Lee Davison
This is the second of two Banking Review articles on the legislative history of the Resolution Trust
Corporation. The legislative history of the establishment of the RTC, “Politics and Policy: The
Creation of the Resolution Trust Corporation,” appeared in Banking Review 17 No. 2 (2005). The
continuation of that legislative history, covering the years 1989–1993, is presented in two parts:
Part I appears here; Part II will follow in an upcoming issue.
The views expressed are those of the authors and do not necessarily reflect official positions of the Federal Deposit Insurance
Corporation. Articles may be reprinted or abstracted if the FDIC Banking Review and author(s) are credited. Please provide the
FDIC’s Division of Insurance and Research with a copy of any publications containing reprinted material.
Chairman Sheila C. Bair
Director, Division of Insurance Arthur J. Murton
and Research
Deputy Director Donald Inscoe
Managing Editor Jack Reidhill
Editorial Committee Christine E. Blair
Valentine V. Craig
Rose M. Kushmeider
Publication Manager Geri Bonebrake
The Liability Structure of FDIC-Insured
Institutions: Changes and Implications
by Christine M. Bradley and Lynn Shibut*
Depository institutions have traditionally looked
to deposits to fund their asset growth. But since
1978, the value of bank assets has increased pro
portionally much more than the value of bank
deposits: between 1978 and 2005 the value of
assets held in commercial banks insured by the
Federal Deposit Insurance Corporation (FDIC)
rose by nearly 500 percent, but total deposits held
by these same institutions increased by only 393
percent. And between 1978 and 2005, the per
centage of U.S. banks that were able to fund at
least two-thirds of their total assets with core
deposits fell from nearly 91 percent to 59
percent.1 In addition to core deposits shrinking,
banks are facing increased interest costs since
bank customers are reacting to higher interest
rates and moving their money out of lower-yield
ing bank accounts and into certificates of deposit
and other higher-paying accounts. As a result of
these developments, bank liability management
demands more attention today than it did just a
few years ago.
In Part 1 of this article we focus on the changes
in bank liability structure, and in Part 2, on the
implications of the changes for regulators. Part 1
describes the events that led to the decrease in
banks’ reliance on deposits, examines the changes
banks made to their liability management in
response, and discusses the possible future of these
changes. Part 2 looks at the possible effects of the
changing bank liability structure on market disci
pline, liquidity risk examination, deposit insur
ance pricing, and failure resolution (domestic
depositor preference and operational issues).
PART 1. Changes in Bank Liability Structure
In this section of the paper we survey the past,
the present, and the possible future of banks’ lia
bility structure. We explain some of the whole
sale funding options available to banks and
describe other choices that bankers have available
in their nondeposit liability management. We
* The authors are in the Division of Insurance and Research at the Federal
Deposit Insurance Corporation. Christine Bradley is a senior policy analyst and
Lynn Shibut is the chief of the Corporate Consulting Services Section. The
views expressed here are those of the authors and do not necessarily reflect
the views of the Federal Deposit Insurance Corporation. The authors would
like to thank Timothy Critchfield, Timothy Curry, Andrew Davenport, Joseph
Fellerman, Warren Heller, Mike Jenkins, Michael Krimminger, James Marino,
Kathleen McDill, Chris Newbury, Dan Nuxoll, Munsell St. Clair, and Mark
Vaughan for their helpful comments, and Tyler Davis, Aja McGhee, and Emily
Song for research assistance. All errors and omissions are their own.
1 Core deposits are estimated as total deposits minus brokered deposits and
other time deposits that are in denominations greater than $100,000.
FDIC BANKING REVIEW 1 2006, VOLUME 18, NO. 2
Institutions: Changes and Implications
by Christine M. Bradley and Lynn Shibut*
Depository institutions have traditionally looked
to deposits to fund their asset growth. But since
1978, the value of bank assets has increased pro
portionally much more than the value of bank
deposits: between 1978 and 2005 the value of
assets held in commercial banks insured by the
Federal Deposit Insurance Corporation (FDIC)
rose by nearly 500 percent, but total deposits held
by these same institutions increased by only 393
percent. And between 1978 and 2005, the per
centage of U.S. banks that were able to fund at
least two-thirds of their total assets with core
deposits fell from nearly 91 percent to 59
percent.1 In addition to core deposits shrinking,
banks are facing increased interest costs since
bank customers are reacting to higher interest
rates and moving their money out of lower-yield
ing bank accounts and into certificates of deposit
and other higher-paying accounts. As a result of
these developments, bank liability management
demands more attention today than it did just a
few years ago.
In Part 1 of this article we focus on the changes
in bank liability structure, and in Part 2, on the
implications of the changes for regulators. Part 1
describes the events that led to the decrease in
banks’ reliance on deposits, examines the changes
banks made to their liability management in
response, and discusses the possible future of these
changes. Part 2 looks at the possible effects of the
changing bank liability structure on market disci
pline, liquidity risk examination, deposit insur
ance pricing, and failure resolution (domestic
depositor preference and operational issues).
PART 1. Changes in Bank Liability Structure
In this section of the paper we survey the past,
the present, and the possible future of banks’ lia
bility structure. We explain some of the whole
sale funding options available to banks and
describe other choices that bankers have available
in their nondeposit liability management. We
* The authors are in the Division of Insurance and Research at the Federal
Deposit Insurance Corporation. Christine Bradley is a senior policy analyst and
Lynn Shibut is the chief of the Corporate Consulting Services Section. The
views expressed here are those of the authors and do not necessarily reflect
the views of the Federal Deposit Insurance Corporation. The authors would
like to thank Timothy Critchfield, Timothy Curry, Andrew Davenport, Joseph
Fellerman, Warren Heller, Mike Jenkins, Michael Krimminger, James Marino,
Kathleen McDill, Chris Newbury, Dan Nuxoll, Munsell St. Clair, and Mark
Vaughan for their helpful comments, and Tyler Davis, Aja McGhee, and Emily
Song for research assistance. All errors and omissions are their own.
1 Core deposits are estimated as total deposits minus brokered deposits and
other time deposits that are in denominations greater than $100,000.
FDIC BANKING REVIEW 1 2006, VOLUME 18, NO. 2