New Options for Safeguarding Public Funds in New York State

School districts along with other local governments in New York State will have new options to help protect and manage their public funds based on legislation signed into law by Governor Cuomo. Effective immediately, this new law enables school districts and other local governments in New York State to place public money through the Insured Cash Sweep and/or the Certificate of Deposit Account Registry Service(CDARS).

The Insured Cash Sweep (ICS) service is used by banks and savings associations that are insured by the Federal Deposit Insurance Corporation (FDIC). Financial institutions that are in the ICS Network can place the deposits received from their customers into interest-bearing savings accounts at other FDIC-insured banks in the Network. Because the funds are placed at multiple banks across the Network in amounts that stay within the FDIC deposit insurance limit at each bank ($250,000), the customer is eligible for total amounts of deposit insurance that are greater than the standard insurance limit for any one bank.

The Certificate of Deposit Account Registry Service (CDARS), is a private, patented, for-profit service that breaks up large deposits (from individuals, companies, nonprofits, public funds, etc.) and places them across a network of more than 3000 banks and savings associations around the United States. This allows depositors to deal with a single bank that participates in CDARS but avoid having funds above the Federal Deposit Insurance Corporation (FDIC) deposit insurance limits in any one bank.

Traditionally, the drawback of obtaining FDIC insurance on large-dollar deposits was the $250,000 limit per depositor, per institution, or the time-consuming process of dealing directly with multiple banks.  Alternatively, officials have had to satisfy the onerous requirement of collateralization with each bank.

Now, by using the ICS and CDARS services, school districts and other local governments can earn interest and access multi-million-dollar FDIC coverage through a single bank relationship.  This can reduce, or even eliminate the need for collateralization.  In turn, this can free up a finance manager’s time to focus on other important matters.  It can also lead banks (to the extent they were reducing the rate offered to account for collateral-tacking costs) to provide higher bid rates on public fund RFPs.

Roy J. Clark (Chip), CPA, CIA