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What to Look for with Excess Deposit Insurance
by Tom Havens, Director of Marketing Services

With current headlines consistently delivering the dire message of a “sub-prime mortgage meltdown,” is your community bank perceived as creditworthy by your target depositor base? Have you reassured depositors of your bank’s ability to meet its credit obligations? Has your institution’s business plan for large dollar depositor growth been stymied by the perception of inadequate insurance limits?

If you’ve answered in the affirmative to any of these questions, it may now be the time to re-examine your institution’s supplemental FDIC deposit insurance programs.

Historically, community banks have addressed the issue of securing large dollar (public) deposits by pledging securities. These funds can obviously be a viable and important source of funding for many banks. Many community bankers also view the acceptance of public funds as part of their mission to serve their community’s financial needs. However, institutions need to develop their own internal systems to carefully track public deposits on a daily basis, and these systems can be costly and burdensome to administer.

Most recently, there was an innovation in addressing deposit insurance inadequacy with the development of the Certificate of Deposit Account Registry Service. These services allow a bank to provide customers with large limits in FDIC insurance coverage on their CD investments.

However, one significant drawback with these network facilities are that deposits are limited in scope to certificates of deposit only. Also, while a viable solution for some  institutions, participation in these registry services requires that your bank join a network for an implementation fee and commit valuable employee resources to help manage and administer that CD-exchange system.

There is a solution to this issue which merits consideration and contains none of the drawbacks mentioned above. An Excess Deposit Bond program can be obtained by banks to insure depositors for amounts exceeding FDIC insurance limits. Excess Deposit Bonds enable community banks to attract and retain large deposits by individual depositors, businesses, non-profit organizations and, in many states, public funds.

There are a select few insurance carriers that offer the banking industry this solution. These Excess Deposit Bonds, also known as financial guaranty or surety products, are not limited to certificates of deposit accounts and can be utilized in most states to pledge for public funds. Banks can also avoid obstacles such as having to monitor the availability of required collateral and the potential volatility associated with holding such deposits by utilizing an Excess Deposit Bond program.

In addition, there are also a multitude of intangible benefits by choosing an Excess Deposit Bond program. Your institution can expand its market share and redouble customer loyalty by cross-selling your other products and services. It’s been clearly demonstrated across many industries that the more “touch points” an institution has with its customers, the more likely they are to retain those accounts.

What should you look for in an Excess Deposit Bond program?

It is important to work with an insurance carrier that has established itself for many years as a provider of Excess Deposit Bonds, a seasoned company that has consistently made the product available to community banks. Are they expanding the availability and increasing the bonding limits for well-run banks, or are they new or in and out of the Excess Deposit Bond marketplace?

Also, question the insurance carrier’s underwriting requirements. Do they limit their coverage limits based solely on a percentage of deposits or asset size? Generally, the best programs carefully examine a bank’s entire operations including its capital base, earnings, loan performance and management team and provide the requested coverage for well-run and financially sound banks.

Perhaps most important, does a carrier’s Excess Deposit Bond program make it easy for your depositor to manage? Try to avoid programs where coverage is issued only in large limit blocks, with little flexibility to make interim changes, where the bond may be cancelled by the underwriter mid-term and where the premium is fully earned at inception. Rather, look for a program that allows coverage to be written in smaller limit blocks, allows a reasonable amount of mid-term adjustments and which may not be cancelled by the underwriter mid-term.

In conclusion, selecting an Excess Deposit Bond program for your institution is a cost effective solution to the inadequacy of FDIC deposit insurance limits. It provides an effective method of attracting deposits; requires minimal administrative work; does not impact your bank’s liquidity position; is a user-friendly product for you and your customers, and may be used for deposits of individuals, businesses, non-profit organizations and a pledge for public funds.

Encourage customers to consolidate their investments through your institution. Rise above the sub-prime “noise” and affirm the creditworthiness of your institution.

Oklahoma City, OK-  BancInsure announced the arrival of Rudy L. Erb as Vice President and Chief Information Officer for the Companies: BancInsure Inc., BMSI Marketing, Inc. and Matterhorn Financial Services, Inc. Mr. Erb will assume leadership for the Companies’ technology initiatives and operations - including related strategies and projects. 

Rudy joins BancInsure with over 12 years of technology leadership.  His management experience has included insurance, financial services, and banking.  Most recently, Mr. Erb was Vice President of Retail Banking Support overseeing the Payment Technology, Internet Project Management, Leadership Development, and Budget Administration & Vendor Management functions for Wachovia (formerly World Savings).  Prior to this, Mr. Erb worked for several national insurers leading marketing analysis, e-commerce development, and IT support departments. He holds a Bachelor of Science degree in Information Systems from the University of Idaho’s College of Business and Economics. 

“With Rudy joining our team, we continue to take steps towards developing the technologically advanced infrastructure that will allow BancInsure to continue as a leader in the insurance industry,” Rod Sargent, CEO said. “With his aggressive strategic planning history, Rudy will play a key role on our future growth and success.”

BancInsure is the industry’s only fully independent insurer with a specific focus on providing insurance products to financial institutions. The Company entered the market in 1986 amidst very difficult market conditions.  After 20 plus years of operations, the Company has business relationships with roughly 20% of the community banks in the United States. Headquartered in Oklahoma City, OK, BancInsure enjoys endorsement agreements with 20 financial organizations across the country.

Contact:
Amy Walling, Marketing Manager
awalling@bancinsure.com
405.290.5790