Certificate of Deposit Account Registry Service

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Certificate of Deposit Account Registry Service

The Certificate of Deposit Account Registry Service (CDARS), was a US for-profit service that broke up large deposits (from individuals, companies, nonprofits, public funds, etc.) and placed them across a network of more than 3000 banks and savings associations around the United States. This allowed depositors to deal with a single bank that participates in CDARS but avoid having funds above the Federal Deposit Insurance Corporation (FDIC) deposit insurance limits in any one bank. [1]

Contents

In 2021, the service was reconfigured with several other offerings of IntraFi Network (formerly Promontory Interfinancial Network) into IntraFi Network Deposits and IntraFi Funding. [2]

How it works

The service can place multiple millions in deposits per customer and make all of it qualify for FDIC insurance coverage. [3] [4] A customer can achieve a similar result, as far as FDIC insurance is concerned, by going to a traditional deposit broker or opening accounts directly at multiple banks (although depending on the amount this could require a lot more paperwork). With IntraFi deposits, the customer’s local bank sets the interest rate that will be paid on the entire deposit amount, and the customer gets one consolidated statement from that bank.

The FDIC has confirmed that deposits placed through deposit placement service offered by the IntraFi Network are eligible for “pass-through” FDIC insurance. [5] The FDIC has not endorsed any particular method of maximizing FDIC insurance coverage, but states that depositors should “protect all (their) deposits with FDIC insurance.” [6]

Related Research Articles

<span class="mw-page-title-main">Federal Deposit Insurance Corporation</span> US government agency providing deposit insurance

The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation supplying deposit insurance to depositors in American commercial banks and savings banks. The FDIC was created by the Banking Act of 1933, enacted during the Great Depression to restore trust in the American banking system. More than one-third of banks failed in the years before the FDIC's creation, and bank runs were common. The insurance limit was initially US$2,500 per ownership category, and this has been increased several times over the years. Since the enactment of the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2010, the FDIC insures deposits in member banks up to $250,000 per ownership category. FDIC insurance is backed by the full faith and credit of the government of the United States, and according to the FDIC, "since its start in 1933 no depositor has ever lost a penny of FDIC-insured funds".

<span class="mw-page-title-main">Certificate of deposit</span> Document tied to a bank account with a fixed term


A certificate of deposit (CD) is a time deposit sold by banks, thrift institutions, and credit unions in the United States. CDs typically differ from savings accounts because the CD has a specific, fixed term before money can be withdrawn without penalty and generally higher interest rates. The bank expects the CDs to be held until maturity, at which time they can be withdrawn and interest paid.

<span class="mw-page-title-main">Bank run</span> Mass withdrawal of money from banks

A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may fail in the near future. In other words, it is when, in a fractional-reserve banking system, numerous customers withdraw cash from deposit accounts with a financial institution at the same time because they believe that the financial institution is, or might become, insolvent. When they transfer funds to another institution, it may be characterized as a capital flight. As a bank run progresses, it may become a self-fulfilling prophecy: as more people withdraw cash, the likelihood of default increases, triggering further withdrawals. This can destabilize the bank to the point where it runs out of cash and thus faces sudden bankruptcy. To combat a bank run, a bank may acquire more cash from other banks or from the central bank, or limit the amount of cash customers may withdraw, either by imposing a hard limit or by scheduling quick deliveries of cash, encouraging high-return term deposits to reduce on-demand withdrawals or suspending withdrawals altogether.

The deposit market share is a way of measuring the size and performance of a bank in the United States based on the banks total amount of deposits. It is the amount on deposit at a particular bank divided by the total amount on deposit at all banks.

<span class="mw-page-title-main">Savings account</span> Type of bank account

A savings account is a bank account at a retail bank. Common features include a limited number of withdrawals, a lack of cheque and linked debit card facilities, limited transfer options and the inability to be overdrawn. Traditionally, transactions on savings accounts were widely recorded in a passbook, and were sometimes called passbook savings accounts, and bank statements were not provided; however, currently such transactions are commonly recorded electronically and accessible online.

Deposit insurance or deposit protection is a measure implemented in many countries to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its debts when due. Deposit insurance systems are one component of a financial system safety net that promotes financial stability.

<span class="mw-page-title-main">Securities Investor Protection Corporation</span> American financial non-profit

The Securities Investor Protection Corporation is a federally mandated, non-profit, member-funded, United States government corporation created under the Securities Investor Protection Act (SIPA) of 1970 that mandates membership of most US-registered broker-dealers. Although created by federal legislation and overseen by the Securities and Exchange Commission, the SIPC is neither a government agency nor a regulator of broker-dealers. The purpose of the SIPC is to expedite the recovery and return of missing customer cash and assets during the liquidation of a failed investment firm.

<span class="mw-page-title-main">Korea Deposit Insurance Corporation</span> South Korean deposit insurer

The Korea Deposit Insurance Corporation (KDIC) is a South Korean deposit insurance corporation, established in 1996 to protect depositors and maintain the stability of the financial system. The main functions of KDIC are insurance management, risk surveillance, resolution, recovery, and investigation.

<span class="mw-page-title-main">Bank failure</span> Insolvency or illiquidity of a bank

A bank failure occurs when a bank is unable to meet its obligations to its depositors or other creditors because it has become insolvent or too illiquid to meet its liabilities. A bank usually fails economically when the market value of its assets declines to a value that is less than the market value of its liabilities. The insolvent bank either borrows from other solvent banks or sells its assets at a lower price than its market value to generate liquid money to pay its depositors on demand. The inability of the solvent banks to lend liquid money to the insolvent bank creates a bank panic among the depositors as more depositors try to take out cash deposits from the bank. As such, the bank is unable to fulfill the demands of all of its depositors on time. A bank may be taken over by the regulating government agency if its shareholders' equity are below the regulatory minimum.

Bank regulation in the United States is highly fragmented compared with other G10 countries, where most countries have only one bank regulator. In the U.S., banking is regulated at both the federal and state level. Depending on the type of charter a banking organization has and on its organizational structure, it may be subject to numerous federal and state banking regulations. Apart from the bank regulatory agencies the U.S. maintains separate securities, commodities, and insurance regulatory agencies at the federal and state level, unlike Japan and the United Kingdom. Bank examiners are generally employed to supervise banks and to ensure compliance with regulations.

<span class="mw-page-title-main">Bank</span> Financial institution which accepts deposits

A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.

Reserve Requirements for Depository Institutions is a Federal Reserve regulation governing the reserves that banks and credit unions keep to satisfy depositor withdrawals. Although the regulation still requires banks to report the aggregate balances of their deposit accounts to the Federal Reserve, most of its provisions are inactive as a result of policy changes during the COVID-19 pandemic.

<span class="mw-page-title-main">Deposit account</span> Bank holding into and from which money can be placed or withdrawn

A deposit account is a bank account maintained by a financial institution in which a customer can deposit and withdraw money. Deposit accounts can be savings accounts, current accounts or any of several other types of accounts explained below.

<span class="mw-page-title-main">Insured Cash Sweep</span> FDIC service

The Insured Cash Sweep or ICS service is used by banks and savings associations that are insured by the Federal Deposit Insurance Corporation (FDIC). In 2021, the service was reconfigured with several others offered by IntraFi Network into IntraFi Network Deposits and IntraFi Funding.

<span class="mw-page-title-main">Insured Network Deposit</span>

The Insured Network Deposits (IND) service was a deposit sweep service for broker-dealers and other custodians of funds. In 2021, the service was reconfigured with several other services offered by IntraFi Network into IntraFi Network Deposits, and IntraFi Funding.

Deposit Insurance and Credit Guarantee Corporation (DICGC) is a specialised division of Reserve Bank of India which is under the jurisdiction of Ministry of Finance, Government of India. It was established on 15 July 1978 under the Deposit Insurance and Credit Guarantee Corporation Act, 1961 for the purpose of providing insurance of deposits and guaranteeing of credit facilities.

IntraFi Network, LLC, is a privately held firm with a network of financial institutions that has approximately one-third of all U.S. commercial banks and thrifts as members. The company is located in Arlington, Virginia.

<span class="mw-page-title-main">Kazakhstan Deposit Insurance Fund</span>

Kazakhstan Deposit Insurance Fund (KDIF) is a non-profit organization that guarantees deposits of individuals and placed with second-tier banks of the Republic of Kazakhstan. The basic objective of the mandatory deposit insurance system is to maintain stability of the financial system in the Republic of Kazakhstan, including strengthening public confidence in the Kazakhstani banking system via reimbursing depositors in the event of a deposit insurance system member bank failure.

MaxMyInterest (Max) is a financial technology (FinTech) service operated by Six Trees Capital LLC. Max is a software platform that allocates individuals' cash among their own bank accounts so that they earn the most interest possible while staying within the limits for FDIC government-deposit insurance. The service works for both individuals and their financial advisors. Headquartered in New York City, Six Trees was founded by former Citigroup investment banker Gary E. Zimmerman in 2013.

The Rhode Island banking crisis took place in the early 1990s, when approximately a third of the US state of Rhode Island's population lost access to funds in their bank accounts. The events were triggered by the failure of a Providence bank, Heritage Loan & Investment, due to long-term embezzlement by its president. News of its problems led to a bank run in which customers tried to withdraw money from the bank which did not have enough money available. In normal circumstances, depositors would be protected by the bank's insurance, but the state's private insurer had a long history of problems and was unable to fulfill its commitments. When the insurer collapsed, Governor Bruce Sundlun announced the closure of 45 credit unions and banks just hours after his inauguration.

References

Specific references:

  1. Bruce, Laura (April 16, 2009). "6 Ways To Insure Excess Deposits". Bankrate. Archived from the original on February 28, 2017.
  2. IntraFi Network, Virginia Bankers Association https://www.vabankers.org/endorsed-provider/intrafi-network
  3. Kim, Jane J. (September 18, 2008). "Your Cash: How Safe is Safe?". The Wall Street Journal.
  4. "CDARS – the Certificate of Deposit Account Registry Service".
  5. "Increasing Deposit Insurance Coverage for Municipalities and Other Units of General Government: Results of the 2006 FDIC Study". FDIC Quarterly. 2 (1). Washington, D.C.: FDIC. 2008. ISSN   1944-8880.
  6. FDIC Consumer News, Winter 2006/2007

General references: