Chronicles Of Depression 2.0: #262: CDARS

Life after your bank fails
For small businesses with six-figure sums socked away, a bank failure can be a devastating blow.

NEW YORK ( — When recruiting consultant Fran Quittel heard on her car radio one Friday afternoon in July that her bank, IndyMac, had been seized by federal regulators, she was surprised but unworried. An IndyMac customer for five years, Quittel had both personal accounts and business accounts at the bank, but she was confident her accounts contained less than the $100,000 insured by the Federal Deposit Insurance Corp.

But as Quittel delved into her banking details that weekend, she got an unexpected shock. Her business savings account was temporarily sheltering a chunk of funds awaiting deposit into her 401(k), and her business checking account still contained the money for an uncashed payroll check. The combination pushed the total stored in her business accounts over $100,000 – and when federal regulators closed IndyMac, Quittel immediately lost access to a portion of her uninsured funds.


The ABA also recommends that small companies consider tapping CDARS, a five-year-old system designed to offer FDIC protection for amounts far greater than the standard $100,000 limit.

CDARS, which stands for Certificate of Deposit Account Registry Service, is a financial service created by the Promontory Interfinancial Network in Arlington, Va. CDARS works by farming out large deposits across multiple banks within its network. Funds are then invested incrementally in multiple CDs, with no single bank holding more than $100,000. If any individual bank fails – as several CDARS members have – the CDs it holds will be of a low enough value to be fully covered by the FDIC.

CDARS is free to depositors, and can insure deposits of up to $50 million. Member banks pay a one-time fee to join the network and thereafter pay transaction fees on the funds they pass through CDARS. Most of the network’s 2,500 banks are small community banks – the average asset base of members is $250 million, according to Mark Jacobsen, president and COO of Promontory Interfinancial Network.

Businesses make up the bulk of CDARS customers, accounting for 37% of its volume. Individuals, public entities like local governments, and banks themselves are also major customers.

Emphasis added by me.


Quittel is hardly alone in being caught out: 10,000 depositors at IndyMac had uninsured deposits, totaling $1 billion. More broadly, about 37% of the $7.07 trillion on deposit with U.S. banks at the end of 2008’s first quarter is uninsured, according to a Wall Street Journal analysis of data reported to the FDIC.

Emphasis added by me.

Trillions uninsured!

If you own a small business that has more than $100,000 in deposits, click the link to be led to CDARS.

It’s not fail-safe in a crisis like we’re facing, but it’s better than relying on the FDIC.

Explore posts in the same categories: Bank Collapse Watch, C.O.A.T. - Belief, C.O.A.T. - Money, C.O.A.T. - Scams, C.O.A.T. - Self-Defense, Depression 2.0, Reference - Life

One Comment on “Chronicles Of Depression 2.0: #262: CDARS”

  1. I was speaking to a banker at a community bank today a community bank and found out how tough the current liquidity crisis is on their operations. Their loan portfolio is incredibly strong, written to rigorous underwriting standards, but their inter-bank funding has virtually dried up.

    My suggestion to them was to shake the trees in the neighborhood for folks who have substantial cash reserves that are sitting in T-Bills and encourage them to move their investments into substantially higher yielding FDIC insured CD’s with a CDARS participating lending institution.

    Wouldn’t it be interesting if we could get the extremely well connected Promontory Interfinancial Network, LLC Founders to encourage the Feds to encourage investors to place deposit money with community banks, substantially increase the investors’ yields without incurring any additional risks vs. treasuries, and break the liquidity crisis.

    The CDARS vehicle could be a intermediate vehicle that the Fed could use instead of becoming the “lender of last resort” (acting as the counterparty on each inter-bank transaction). In my opinion, it is the community banks that are going to help rectify our economy, not the Wall Street firms or money center banks.

    Presidential Implications

    It could be an arrow in the quiver of whichever Presidential Candidate they support.

    Patriotic Duty

    I think it is our patriotic duty to try and save our economy. I am trying to do my part.

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