"It allows us to serve all of our customers’ needs, rather than having them have to go to another bank."
– Jim Langin
President of Bank Iowa’s West Des Moines 
and Johnston branches
"It allows us to serve all of our customers’ needs, rather than having them have to go to another bank." – Jim Langin President of Bank Iowa’s West Des Moines and Johnston branches

With the July 11 federal takeover of IndyMac Bank, people are more aware than ever of the $100,000 Federal Deposit Insurance Corp. (FDIC) limit on deposit insurance. After all, the FDIC estimates that 10,000 IndyMac depositors held uninsured deposits above the $100,000 limit that totaled $1 billion. But businesses and individuals who have more than $100,000 in savings don't have to do financial gymnastics to ensure that their deposits are fully insured.

By banking with an institution that participates in the Certificate of Deposit Account Registry Service (CDARS), customers can obtain FDIC coverage for up to $50 million in deposits, yet keep their deposits at one bank.

"It allows us to serve all of our customers' needs, rather than having them have to go to another bank," said Jim Langin, president of Bank Iowa's West Des Moines and Johnston branches. Bank Iowa Corp., which has been a CDARS member for the past two years, is one of 10 Greater Des Moines banks and 66 Iowa banks currently participating in the network.

Here's how it works: If a customer has $1 million to deposit with their bank, that deposit is divided by CDARS into 11 certificates of deposit with face values of less than $100,000 each that are issued by other member banks in the network. With help from a sophisticated matching system, the banks exchange funds on a dollar-for-dollar basis to bring the full amount of the original deposit back to the originating bank. The customer receives a consolidated monthly statement listing each institution where CDs have been placed.

"We're picking up new institutions quickly," said Phil Battey, vice president of legislative and public affairs for Promontory Interfinancial Network LLC, the Alexandria, Va.-based company that developed CDARS five years ago. "Up until about the first of the year, we had between seven and 10 banks a week joining. Last week, it was more than 50 calling us to come on board. So we've seen a steady ramping up of interest in the industry as well."

The network is the brainchild of three former top financial regulators: Eugene Ludwig, former U.S. comptroller of the currency; Alan Blinder, a former vice chairman of the Federal Reserve's board of governors; and Mark Jacobsen, former chief of staff of the FDIC. Promontory processed its first CDARS transaction in January 2003.

The FDIC has neither authorized nor endorsed the CDARS program, said David Barr, a spokesman for the FDIC. The agency did issue a letter stating that "as described, (CDARS) would receive pass-through insurance, based on the way they described it to us," Barr said. However, "to my knowledge, it has never been tested in a bank failure situation," he said.

The FDIC Web site (www.fdic.gov) has an online tool, the Electronic Deposit Insurance Indicator, which individuals can use to calculate how much insurance beyond the $100,000 a depositor can obtain by properly structuring his or her accounts. For instance, a married couple could establish accounts to obtain as much as $1.1 million in FDIC coverage at one institution, Barr said.

To date, CDARS has signed on about 2,150 FDIC-insured institutions, Battey said. "That accounts for a little more than one-quarter of the industry."

When it processed its first transaction in 2003, CDARS was able to offer deposit protection of up to $250,000. With the growth of the network, that limit has ballooned to $50 million per customer.

Currently, the average CDARS accountholder has a balance of between $400,000 and $500,000. Individuals account for about one-third of CDARS deposits, with businesses making up another third. About 15 percent of deposits are from local governments, with the remainder from nonprofits and other organizations.

The program appeals primarily to community banks; the average size of a network member is about $500 million in assets, Battey said.

CDARS member banks are charged an implementation fee when they join the network to cover the cost of marketing and support training. Banks are then charged for each transaction they originate for a customer, based on the term of the CD placed.

Though Bank Iowa first tries to maximize FDIC coverage through separate accounts, CDARS is a great way for banks to maintain their local deposit base, Langin said.

"We're looking at adding more customers, given the economy right now," he said.

CDARS is poised for rapid growth, Battey said.

"We're in the business of providing safety," he said. "As long as that's on people's minds, we're going to be doing very, very well."