Regulatory Mailing RM200 4-01: Certificate of Deposit Account Registry Service

Office of the State Bank Commissioner Regulatory Mailing RM200 4-01 To: All State Chartered Banks From: Clarence W. Norris, Bank Commissioner Date: May 12, 2004 Re: Certificate of Deposit Account Registry Service As you know, examiners for the Office of the State Bank Commissioner routinely review public deposits and pledging requirements as part of the regular safety and soundness examination of banks. A recent opinion issued by the Kansas Attorney General’ s Off ice, Opinion No. 2004 -9, permits governmental entities to invest idle funds which are not immediately needed in local banks which participate in a Certificate of Deposit Account Registry Service (“ CDARS”). This deposit of funds is deemed to be in compliance with the requirements of K.S.A. 12 -1675 (b)(2). Based on our review of the Attorney General’ s Opinion, as well as information on the CDARS website, www .cdars.com, CDARS is a deposit placement service offered by Promontory Interfinancial Network in which a group of FDIC insured financial institutions reciprocate with one another to provide their large depositors with FDIC insurance on the entire deposit. This allow s depositors to place large deposits with their local bank, and that bank in turn places those funds that exceed the FDIC limit with other banks in the CDARS network. In exchange for those deposits, the local bank receives Certificates of Deposit for the same amount from other network member banks. The depositor will continue to manage all funds with the original depository bank, so there is no need to be in contact with multiple banks regarding the funds on deposit. Monthly, the local depository bank will send a statement to the depositor listing each CD, the bank issuing the CD, maturity dates, interest earned, and other details. The result of this arrangement is that the depositor receives FDIC coverage on its entire deposit, since each bank participating in the CDARS network will only have $100,0001 of the entity’ s funds on deposit; and the local bank will continue to have the entire amount of the deposit available for use in the local community because of the reciprocal deposits from other financial institutions. The Attorney General’ s off ice opined that the CDARS program would be consistent with K.S.A. 12-1675 (b)(2), if the following conditions were met:

1. The Kansas institution receiving the original deposit has a main or branch office located in the required area;
2. The Kansas institution receives reciprocal deposits in an amount equal to the funds placed by the governmental entity;
3. Other participating financial institutions are located within the U.S.; and
4. Each CD is in an amount eligible for full FDIC coverage.

1 Updated 2019. The FDIC coverage is $250,000.

A copy of the Attorney General’ s Opinion is attached. This mailing should not be construed as an endorsement by the Office of the State Bank Commissioner of the CDARS program or of Promontory Interfinancial Network. This mailing is provided for information purposes only.