Liquidity, Interest Rate, Price/Market Risks
Funding and investment-related risks could increase with an institution's e-banking initiatives depending on the volatility and pricing of the acquired deposits. The Internet provides institutions with the ability to market their products and services globally. Internet-based advertising programs can effectively match yield-focused investors with potentially high-yielding deposits. But Internet-originated deposits have the potential to attract customers who focus exclusively on rates and may provide a funding source with risk characteristics similar to brokered deposits. An institution can control this potential volatility and expanded geographic reach through its deposit contract and account opening practices, which might involve face-to-face meetings or the exchange of paper correspondence. The institution should modify its policies as necessary to address the following e-banking funding issues:
- Potential increase in dependence on brokered funds or other highly rate-sensitive deposits;See "Joint Agency Advisory on Brokered and Rate-Sensitive Deposits," issued May 11, 2001.
- Potential acquisition of funds from markets where the institution is not licensed to engage in banking, particularly if the institution does not establish, disclose, and enforce geographic restrictions;
- Potential impact of loan or deposit growth from an expanded Internet market, including the impact of such growth on capital ratios; and
- Potential increase in volatility of funds should e-banking security problems negatively impact customer confidence or the market's perception of the institution.