My bank is developing a service offered through Promontory Interfinancial Network that allows us to trade Certificates of Deposit with other banks for the purpose of providing some of our customers with more complete FDIC insurance. This is a new concept to me.

What are the risks with this new service?

What controls are needed?

This doesn't sound like a free service so your customer pays a fee for somethingn they could walk across the street and do for free? I would hope in the agreement with this company is some type of wording that prohibits the competing bank from direct solicitation of your customer for other financial services.

Not sure how a "Trade" of CD's gets around the insurance maximum as the bank has still issued the funds. Unless the account is actually opened at the other institution. So, if you ask them to open an account at another bank for your customer do they in turn open an account for a like amount for a person from another bank at your bank?

I haven't read it in awhile but doesn't the FDIC Insurance phamplet indicate that there are a number of ways a person can open an account and still be covered even if their total deposits exceed $100,000?

Is this a service you are going to advertise?

Don,

I had the same questions, but based on the Board of Directors for this company, I think they probably have these issues figured out!!

In addition to Eugene A. Ludwig, former Comptroller of the Currency, the Promontory Board of Directors includes: Alan S. Blinder, former vice chairman of the Federal Reserve Board; Mark P. Jacobsen, former chief of staff at the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency; James M. Culberson, Jr., former ABA president; O Jay Tomson, CEO of First Citizens National Bank, Mason City, Iowa; L. William Seidman, former FDIC chairman, Edward W. Kelley, Jr., former Fed governor; former Senator Warren B. Rudman; Frank N. Newman, former deputy secretary of the Treasury; J. Michael Shepherd, EVP and general counsel at The Bank of New York and former OCC senior deputy comptroller; Kenneth M. Duberstein, former Reagan chief of staff; Anne L. Armstrong, former counselor to the president with Cabinet rank for Presidents Nixon and Ford; and Frank G. Zarb, former CEO and chairman of NASD and NASDAQ. The Promontory Bank Advisory Board is chaired by William Isaac, former FDIC chairman.

Despite the impressive list of names I would still want to know the details of how this works as I am obligated to my customer to know and understand what I am recommending to them.

There may not be any, but whats the down side the customer should know about thats not in the brochure. Something as simple as how would a customer get their money if they needed to is important to know.

Re: Don's first reply:

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This doesn't sound like a free service so your customer pays a fee for something they could walk across the street and do for free? I would hope in the agreement with this company is some type of wording that prohibits the competing bank from direct solicitation of your customer for other financial services.

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Terms and restictions for the two banks are not known at this point. I have only just learned that the project is underway.

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Not sure how a "Trade" of CD's gets around the insurance maximum as the bank has still issued the funds. Unless the account is actually opened at the other institution. So, if you ask them to open an account at another bank for your customer do they in turn open an account for a like amount for a person from another bank at your bank?

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Yes, these accounts are opened at the corresponding banks, and we will receive some accounts in return. I do not expect that these will be local banks.

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Is this a service you are going to advertise?

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Unknown but I would guess not, rather something to offer if depositor seeks more FDIC insurance protection than we can provide through various account arrangements.

Thank you, Don and Richard for your input.

I am also curious how the banks will identify the depositors under CIP.

If a bank goes ahead with this type of service for its customers (depositing funds over the FDIC insurance threshold at the various banks) what bank(s) issues Regulation DD disclosures. For example, what bank's early withdrawal penalty would be exercised?

Whatever bank holds the deposit on it's balance sheet is responsible for all disclosures.