FRM Exam Part II · Managing Nondeposit Liabilities

Long-Term Debt, Brokered and Large Time Deposits

Updated 11 October 2026 · Fact-checked

Long-term debt, brokered deposits and jumbo CDs are nondeposit or wholesale-type funding sources. They are rate-sensitive and less loyal than core deposits, so they cost more. Long-term debt is the most stable; jumbo CDs and brokered deposits can leave at maturity. Judge each by cost, maturity, concentration and regulatory treatment.

Understand Long-Term Debt, Brokered and Large Time Deposits

A bank funds itself with core deposits (small, relationship-based, insured, rate-insensitive) and with purchased or wholesale funds. This topic covers three purchased sources: term debt, brokered deposits and large time deposits.

Long-term debt means bonds or notes, such as senior unsecured or subordinated debt. It has a fixed maturity, so it cannot run before it matures. That makes it stable funding. The cost is a credit spread over the benchmark rate, and the spread widens when the bank's credit weakens. Refinancing risk appears as maturities cluster. Subordinated debt may also count as regulatory capital, and senior debt may count toward loss-absorbing requirements such as TLAC.

Jumbo CDs are large time deposits, often above the deposit insurance limit (in the US, ₹ or USD amounts above USD 250,000). Because the excess is uninsured, the depositor watches the bank's credit quality and shops for rate. These funds are rate-sensitive and can fail to roll over when worries arise. They are less stable than core deposits.

Brokered deposits are placed by a third-party broker who splits large sums into insured pieces and moves them to the highest bidder. They give fast, scalable funding in any geography. But they are loyal to rate, not to the bank. Supervisors in the US restrict them for weakly capitalised banks, and they may raise deposit insurance assessments. Not all brokered funds behave alike: sweep or reciprocal arrangements tied to a customer relationship can be stickier.

Under Basel III liquidity rules, stability depends on counterparty type, maturity and insurance. In the LCR, stable insured retail deposits get a low run-off rate, while wholesale and brokered funds get higher rates. In the NSFR, funding with residual maturity of one year or more gets a high available stable funding factor, and shorter wholesale funding gets a lower one. Always link instrument to behavior to regulatory treatment.

Key formulas to remember

All-in cost of purchased funds: All-in cost = (interest + fees + insurance assessments) ÷ net funds raised; Include broker fees and reserve or insurance costs, not only the quoted rate.
Net funds raised: Net funds = amount raised − issuance costs − required reserves; Use this as the denominator when costs reduce usable funds.
Weighted average cost of funding: WACF = Σ (wᵢ × costᵢ); wᵢ is the share of each funding source in total funding.
LCR: LCR = stock of HQLA ÷ total net cash outflows over 30 days ≥ 100%; Wholesale and brokered deposits carry higher run-off rates than stable insured retail deposits.
NSFR: NSFR = available stable funding ÷ required stable funding ≥ 100%; Liabilities with residual maturity of one year or more get a high ASF factor; short wholesale funding gets less.
Maturity concentration: Concentration (%) = debt maturing in a period ÷ total term debt; High values signal refinancing risk.

How to solve Long-Term Debt, Brokered and Large Time Deposits questions

Use one routine for any question on purchased funding.

1Identify the instrument: term debt, jumbo CD or brokered deposit, and whether it is insured or uninsured.
2Identify who the funds provider is and what drives them: rate, credit worries or relationship.
3Check maturity. Contractual maturity limits run risk for debt; CDs and brokered funds can still fail to roll over.
4Compute cost if asked, including fees, assessments and reserve effects, using net funds as the denominator.
5Assess stability and concentration: share of total funding, maturity clustering, single-broker dependence.
6Apply regulatory treatment: run-off rates in the LCR, ASF factors in the NSFR, capital or TLAC eligibility, and brokered deposit restrictions for weak banks.
7Choose the answer that matches the bank's condition: a healthy bank has more access, a stressed bank loses it first.
8Check units and period, such as annual versus semiannual rates.

Quickest way: Rank by stability, then check the cost

When to use it: Use for conceptual or comparison MCQs on which funding source is more stable or costly.

Rank stability: core insured retail > long-term debt (until maturity) > jumbo CDs > brokered deposits and short wholesale.
Rank cost roughly in reverse: purchased funds cost more than core deposits.
Remove options that say brokered deposits are always unstable or always core-like.
For calculations, divide total cost by net funds, not gross.

Common mistakes in Long-Term Debt, Brokered and Large Time Deposits

Treating brokered deposits as core deposits because they are insured.
Insurance suggests no run risk.
Fix: Insurance removes credit-driven runs but not rate-driven exit. The funds follow yield, so stability is lower than relationship deposits.
Saying all brokered deposits are prohibited.
Overstating the regulatory rule.
Fix: Restrictions apply to banks that are not well capitalised. Well-capitalised banks may use them.
Using the quoted rate as the full cost.
Fees and assessments are overlooked.
Fix: Add broker fees and insurance costs and divide by net funds raised.
Assuming long-term debt has no liquidity risk.
Focus on the fixed maturity only.
Fix: Check refinancing risk when maturities cluster and when spreads widen in stress.
Ignoring that jumbo CDs are mostly uninsured.
Confusing them with small retail CDs.
Fix: Uninsured depositors react to credit news, so jumbo CDs can run faster.

Worked examples

Example 1

A bank raises USD 200 million through a broker at a 5.00% annual rate. It pays a 0.25% annual broker fee and 0.15% annual insurance assessment on the amount. Reserve and issuance costs are nil. What is the all-in annual cost?

Show the solution

Interest = 5.00% of 200 million = USD 10.0 million.
Fee = 0.25% of 200 million = USD 0.5 million.
Assessment = 0.15% of 200 million = USD 0.3 million.
Total cost = 10.0 + 0.5 + 0.3 = USD 10.8 million.
All-in cost = 10.8 ÷ 200 = 5.40%.

Answer: 5.40% per year.

Example 2

Which funding source is likely to be least stable for a bank under stress: (A) 7-year senior notes, (B) core insured retail savings, (C) brokered CDs maturing in 3 months, (D) 10-year subordinated debt?

Show the solution

Notes and subordinated debt cannot be withdrawn before maturity, so (A) and (D) are stable in the short run.
Core insured retail savings are relationship-based and insured, so (B) is stable.
Brokered CDs maturing in 3 months can leave soon and are rate-driven, and a weak bank may be barred from renewing them.
Therefore (C) is the least stable.

Answer: (C) Brokered CDs maturing in 3 months.

Exam tips

Expect comparison questions: pick the most or least stable source and justify with behavior, not just label.
Watch for the words well capitalised or weak bank; brokered deposit restrictions depend on capital status.
In cost calculations, include all fees and divide by net funds raised.
Link answers to the LCR run-off and NSFR maturity logic when the question mentions Basel.

Practice questions from Managing Nondeposit Liabilities

Long-Term Debt, Brokered and Large Time Deposits: frequently asked questions

Are brokered deposits stable funding?

Not reliably. They are often insured but rate-driven, so they can leave at maturity if a better rate appears. Some relationship-based arrangements are stickier, so judge the structure.

How do jumbo CDs differ from core deposits?

Jumbo CDs are large, mostly uninsured and rate-sensitive, so they react to credit news and yields. Core deposits are small, insured and tied to a customer relationship.

Why issue long-term debt?

It locks in funding with a fixed maturity, reduces run risk and can support capital or loss-absorbing requirements. The cost is a credit spread, and refinancing risk remains if maturities cluster.

How does Basel treat these funds?

The LCR assigns higher run-off rates to wholesale and brokered funds than to stable insured retail deposits. The NSFR gives more credit to liabilities with a residual maturity of one year or more.