Magazine article American Banker

New Funding Tool for Loans: Securitized CDs

Magazine article American Banker

New Funding Tool for Loans: Securitized CDs

Article excerpt

Byline: Kate Berry

Community banks and thrifts have a new outlet and funding source for their own deposits: securitization.

Though bank deposits are not currently considered an asset class, two companies,Insured Deposits Conduit LLC and a rival that recently renamed itself Community Bank Funding Co., have been working to turn them into a marketable security.

As with auto loans, credit cards, or mortgage-backed securities, securitized bank deposits would have a Federal Deposit Insurance Corp. guarantee and could provide an alternative funding source at a time when many community banks and thrifts are scrambling for liquidity to make loans.

Gregory Schein, the president of Insured Deposits Conduit, said in an interview Tuesday that the new asset class would allow small and midsize banks to securitize certificates of deposit through a special-purpose vehicle that could be used to sell bonds to institutional investors, allowing banks to raise more capital to fund loans, including mortgages.

Mr. Schein said 250 banks have signed up to take part in upcoming securitization programs of more than $500 million.

"One of the major problems banks are facing is capital and liquidity," he said, and securitizing CDs could alleviate "deposit pressures" on banks. Core deposits typically make up roughly two-thirds of a bank's liabilities, with the remainder coming from brokered deposits, repurchase lines, and advances from the Federal Home Loan banks, he said.

Because banks would be securitizing insured deposits, they would not have to post collateral or "to tie up assets," Mr. Schein said. Banks would also be required to pay the same interest rate to investors that they would pay on CDs.

Last month the Federal District Court for Southern Florida dismissed a lawsuit that Mr. Schein's company, which is based in Miami, had filed against what was then Index Powered Financial Services and is now Community Bank Funding. …

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