ICS and CDARS - Positioning Your Bank for the Long Term

by Rogers Pope, Jr.
Chair of the IBAT Services Board and Vice Chairman and Chief operating Officer of Texas Bank and Trust, Longview

For banks, the industry aggregate loan-to-deposit (LTD) ratio remains depressed and very near its lowest level in the past 10 years – 69.0% for banks with more than $1 billion of assets and 73.6% for those with less than $1 billion of assets.[1]

But the current glut of deposits will not last forever. Many in the industry see loan demand picking up and expect competition for deposits to increase.

How can your bank stay ahead of the competition and be ready to fund future growth? As a member of the Promontory Network, your financial institution has at its disposal powerful tools for attracting and retaining depositors. With ICS®, the Insured Cash Sweep® service, and CDARS®, your bank can offer customers thesecurityassociated with access to FDIC insurance, the return they seek, and the flexibility they desire. These services provide access to multi-million-dollar FDIC insurance on funds placed into demand deposit accounts (through ICS), money market deposit accounts (through ICS), or CDs (through CDARS).

Your bank sets the interest rate earned on customer deposits placed through the services and, with respect to ICS, can even set the rate to zero if desired.

But your bank doesn’t have to wait for higher interest rates to begin reaping the benefits of ICS and CDARS. Both services can help improve your bank’s bottom line today.

By offering ICS as a cash management solution, one community bank was able to generate over $14 million in ICS deposits over a twelve-month period. ICS provided this bank with the opportunity to bring approximately $7 million back onto its balance sheet from an off balance sheet sweep account that it had previously placed with a large investment bank. It also was able to capture over $7 million in additional ICS customer deposits. The new, large-dollar relationships consisted of over $4 million in public fund deposits and more than $3 million in retail customer deposits. On average, the bank was able to attract one new ICS customer per month over a twelve-month period. Combined, these efforts have primed the bank for success by reducing the cost of funding; locking in long-term, valuable customers; and opening up new cross-selling opportunities.

Financial institutions across the country are using ICS and CDARS to replace higher-cost funding (e.g., repurchase sweeps and letters of credit). They are also using enhanced relationships from CDARS and ICS Reciprocal deposits to capitalize on cross-selling opportunities. And they are substituting collateralized deposits with ICS and CDARS deposits, which enable them to repurpose funds invested in collateral into higher-earning assets, reduce collateral-tracking costs, improve asset liquidity, and lower the risk of shortfall due to collateral-value deterioration.

All of this makes ICS and CDARS smart choices for bankers today and tomorrow. To learn more, please visit www.promnetwork.com, or call (866) 776-6426 ext 3432 or ext 5810.

1The FDIC’s Statistics on Depository Institutions (SDI) system. All data is as reported on 9/30/2013 Call Reports.