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Encouraging Stickier Funding

• Reciprocal deposits are generally less rate-sensitive than wholesale or brokered funds.
• This helps banks reduce funding volatility when interest rates rise or fall.

Lengthening Deposit Duration

• Many reciprocal deposits are placed as certificates of deposit (CDs) with maturities that can extend out to 1 year or longer.
• This allows banks to match longer-term assets (like loans) with longer-duration liabilities, reducing mismatch risk on the balance sheet.

Reducing Reliance on Rate-Volatile Funds

• Without reciprocal programs, banks might have to turn to:
• Brokered CDs (which can be volatile and subject to regulatory limits)
• High-rate promotional deposits (which are expensive)
• Reciprocal deposits offer stable, insured funding at rates that are often more predictable and manageable.

Regulatory Treatment and Capital Planning

• For well-capitalized banks, reciprocal deposits are not classified as brokered, avoiding additional supervisory scrutiny.
• This allows banks to use them more flexibly in asset-liability management (ALM) strategies to control duration gaps.