Tuesday, October 07, 2008

Policy Consideration for the Federal Reserve Board - CDARS

Certificate of Deposit Account Registry Service® (CDARS®), owned by Promontory Interfinancial Network, LLC, are a great way to increase yield over T-Bills, while still having a security insured by the Federal Government.

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.
CDARS® is the Certificate of Deposit Account Registry Service®. And it's the most convenient way to enjoy full FDIC insurance on deposits of up to $50 million. With CDARS, you sign one agreement with a participating local bank or other financial institution of your choice, earn one interest rate, and receive one regular statement. It's that easy.
Source: www.cdars.com

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.

Ironic Foresight: Definition of Promontory
A promontory is a prominent mass of land which overlooks lower lying land or a body of water (when it may be called a headland).

Most promontories are formed either from a hard ridge of rock that has resisted the erosive forces that have removed the softer rock each side of it, or are the high ground that remains between two river valleys where they form a confluence.

Throughout history many forts and castles have been built upon promontories because of their natural defensive properties.
Source: www.wikipedia.com

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