STRENGTHENING FRANCHISE VALUE Why Community Banks Are Growing Their Use of Reciprocal Deposits By Joseph Hooker, Chief Sales Officer, IntraFi Deposit competition remains fierce. According to IntraFi’s latest survey of bank executives, 93% say they expect deposit competition to remain at current levels or increase over the next year.1 To stay competitive in the current environment, community banks need every tool in their arsenal to attract and retain large-dollar depositors like businesses, nonprofits, government entities and high-net-worth individuals. A reciprocal deposit network, which enables banks to attract and retain loyal, franchise-building customers by offering access to multi-million-dollar aggregate FDIC insurance across a bank network, is one such tool. Per recent research published by the Federal Reserve Bank of Dallas, reciprocal deposit networks get an outsized share of deposits from small and mid-sized banks. “Reciprocal deposits represented 6.47% of total deposits for banks with less than $10 billion in assets in the first quarter, up from 6% at the end of the first quarter of 2024. Among institutions with assets of $10 billion to $100 billion, such deposits accounted for 6.2% of total deposits as of March 31, 2025, down only slightly from year-end 2024 but up from 6.1% at the end of first quarter 2024.”2 Why Are Community Bankers Increasing Their Use of Reciprocal Deposits? Use of reciprocal deposits saw a significant uptick after 1) the 2018 Economic Growth, Regulatory Relief and Consumer Protection Act, which recognized most reciprocal deposits as nonbrokered deposits, and 2) bank failures in the spring of 2023. Since then, small and mid-sized banks have maintained their heightened usage patterns. Per the Economic Growth, Regulatory Relief and Consumer Protection Act, reciprocal deposits held by an FDIC-insured depository institution are reportable as nonbrokered if the bank is well capitalized and has received an “outstanding” or “good” on its most recent examination; and the total amount of reciprocal deposits held does not exceed the lesser of $5 billion or 20% of the bank’s total liabilities. With this new (in 2018) characterization of reciprocal deposits — and because reciprocal deposits tend to be lower-cost deposits that come in large increments from local customers — more banks embraced reciprocal deposits as an attractive option for growing franchise value. Then, the high-profile bank failures in spring 2023 drew attention to the risks for bank customers who have cash balances greater than the FDIC-insured maximum of $250,000, thereby increasing demand for large deposit 12
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