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New approach to large bank deposits transcends FDIC insurance limit

WASHINGTON - As the continuing success of casino gaming and business enterprise enables tribes and individual Indians to save more money than many of them have ever known before, one of those problems we'd all love to have has become more pressing.

Namely - where to deposit large aggregations of capital when the Federal Deposit Insurance Corporation insures bank deposits for up to $100,000 only. More on deposit than that and a bank that fails makes no guarantees.

A solution is at hand - but to review first ? conventional practice until now has been to place $100,000 in a plurality of banks. That is a secure proceeding but not a convenient one, for each deposit requires separate negotiations with new bankers, a new set of paperwork and a new account to keep track of. Even banks, while seldom if ever complain about a $100,000 deposit, may find these arrangements economically inefficient; and they often end up earning less-than-optimum interest rates on such deposits.

Now though, a financial group headquartered in Washington and a tribally owned bank in Oklahoma have gotten together to streamline the large-deposit process for depositors and banks alike. Bank2, the Chickasaw Nation-owned bank in Oklahoma City, is offering a service that permits depositors to make a single FDIC-insured deposit of up to $1.5 million or more every week. Those depositors may include private investors, non-profits, municipalities, corporations, tribal governments, tribal enterprises, Indian housing authorities, foundations and small businesses.

"Instead of dealing with multiple bankers and multiple pieces of required paperwork, our customers have the convenience and peace-of-mind knowing they are dealing directly with us," explained Ross A. Hill, Bank2 president and chief executive officer. "What's more, it's all FDIC-insured."

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The idea behind the new Certificate of Deposit Account Registry Service, or CDARS, program has made irregular appearances in Indian country for years. But new computer technology and influential backers give CDARS apparent staying power as an efficient and effective solution for large depositors.

The CDARS single-large-deposits program relies on a reciprocal banking network administered by Promontory Interfinancial Network of Washington, D.C. In essence, because any bank within the network receiving a large deposit allocates portions of the deposit into other CDARS-participant banks, in amounts of $100,000 or less, all of a large deposit is FDIC-insured. The customer makes one deposit in one account at one bank, but the entire amount is FDIC-insured because of the way the point-of-transaction bank administers the customer accounts. Cutting-edge computer software, developed by Promontory at a cost in the tens of millions of dollars according to J.D. Colbert, a Bank2 consultant and president of the North American Native Bankers Association, makes it possible to administrate the deposits electronically among the network banks, without capital transfers and with an absolute minimum of paperwork (in most cases, one document will do it).

Any viable professional network must inspire confidence and trust between the participants, of course. But in the historically risk-averse banking industry, the importance of confidence and trust in any new venture is particularly strong. Eugene Ludwig, former U.S. comptroller of the currency, and Alan Blinder, former vice chairman of the Federal Reserve Bank System, developed the CDARS program. Without doubt, their credibility in banking and financial circles was instrumental in forging the CDARS network. Ludwig's stock in Indian country is probably as high as any central banker's has ever been; together with Clinton-era Treasury Secretary Robert Ruben and Attorney General Janet Reno, he made Indian country a major part of the Clinton campaign for "the democratization of credit."

The CDARS program is available to banks outside of Indian country. Bank2 bills itself as the first Indian-owned bank to offer it. Hill calls the program "absolutely fantastic ? the best thing I've seen in banking in 23 years." It has been endorsed by the American Bankers Association, the Oklahoma Bankers Association and the North American Native Bankers Association, among others.

Bank2 will sponsor a luncheon seminar on CDARS on Dec. 17 in Oklahoma City, with Ludwig in attendance. More information is available at