Testimonials about reciprocal deposits.
Testimonials about reciprocal deposits.
Reciprocal deposits are popular because they tend to be associated with multi-million-dollar depositors, enabling banks to attract deposits in large chunks with lower acquisition and maintenance costs as costs tend to be spread over much larger deposit amounts. Moreover, they tend to come from local customers at rates that are more in line with local pricing norms. They also tend to come from customers who are more likely to be interested in a broader, more long-term relationship that may include mortgages, credit cards, and other profit-generating services.
Our public funds customers appreciate knowing that when they place their funds through [IntraFi Network Deposits], those funds are eligible for FDIC protection beyond $250,000 and earn interest. That benefits them, as well as local taxpayers, as our bank can make those funds available for investment within the community.
Reciprocal deposits are an important piece of our expansion strategy, and I can someday see us bumping the limit of the lesser of $5 billion or 20% of total liabilities, in part because they are a great tool for attracting municipal funds.
In stark contrast to listing service deposits, reciprocal deposits help a bank build franchise value. Quite simply, reciprocal deposits tend to be large, lower-cost, in-market deposits and, as such, offer greater potential for opportunity and efficiency. For this reason, many banks are replacing at least a portion of their listing service deposits with reciprocal deposits.
[Sec. 202 of S. 2155] is a step in the right direction. It makes it easier for community banks to accommodate large depositors.
The definition of brokered deposits needs to be modernized, and we appreciate that Congress took a first step by recognizing reciprocal deposits are a stable source of funding for many community banks.
Since [S. 2155] was passed…we reached an agreement with a trustee that will at least double our current amount of reciprocal deposits outstanding. The economy of Georgia is roaring back, and Calumet Bank is helping to add to the rebound. Section 202 enables us to add even more.
[IntraFi Network Deposits] is the perfect match for us and our public fund customers. It can eliminate the need for deposit collateralization, which frees up our time, frees up their time, and reduces everyone’s administrative tracking costs. It also allows our previously restricted funds to work harder and for their funds to be channeled back into the local community. We all win.
This [the change in the regulatory statutes regarding reciprocal deposits] is one of those areas that reflects what bankers always thought was true—when a large, local depositor does business with us, any deposits above the $250,000 FDIC insurance threshold shouldn’t be considered brokered, or highly volatile, just because we place them with other institutions on a reciprocal basis.
[Section 202 of S. 2155] gives Empire State Bank a powerful new tool to compete with the largest institutions for the deposits generated by small professional offices. It provides a way for Empire State Bank to attract new, valuable customers—customers that not only have sizeable deposits, but who can act as a referral source to other customers for our lending and other services. It also gives the bank a tool for managing liquidity.
Section 202 made it much easier for us to draw in public funds from local government entities. This allows the bank to divert this additional liquidity to loans rather than purchasing collateral to secure those public funds. Reciprocal deposits help us better manage our balance sheet. We can more easily determine what to do with excess liquidity and easily follow through on those decisions which lowers our cost of funds and increases our profitability. Most importantly, reciprocal deposits give us another way to further our support for our communities.
We think the change to reciprocal deposits is great. It clarifies the status of reciprocal deposits and alleviates the concerns many community banks had about using them.
[Reciprocal deposits] have been a key driver for us in the last several years. We’ve been able to drive the wholesale brokered deposits down and substitute [them] with [reciprocal deposits]. The big difference that I see, in addition to just sheer volume, is the pricing. Wholesale pricing is a lot higher. You can drive and price these deposits the way your market [commands] and the way you would your other pricing decisions.
Calumet Bank joined [IntraFi] so we could provide [two depositors] access to full federal deposit insurance coverage through reciprocal deposits. We learned that reciprocal deposits were a way to meet the needs of these two depositors, and we reasoned that they could also be used to attract new depositors who wanted [access to] full [multi-million-dollar] federal deposit insurance coverage.