FDIC Federal Register Citations

From: Greg Studer
Sent: Monday, October 13, 2008 9:55 AM
To: Comments
Subject: Comment on RIN: 3064-AD35  

From:  Northstar Bank of Texas, Denton Texas, FDIC Certificate # 20935 

Thank you for the opportunity to comment on the proposed amendment to 12 CFR 327, specifically relating to the manner of premium calculation for deposits placed through the Promontory Interfinancial Network's CDARS program. 

Northstar Bank of Texas has participated in the CDARS program for over 5 years and, until recently, averaged approximately 5% of total deposits in the CDARS program.  CDARS is an excellent product for loyal customers to place funds in a secure environment and deal only with their local community bank. As you can understand, over the past month, the flow of funds into the CDARS program has escalated and as of this date, approximately 14% of the Bank's deposits are in CDARS.   

We believe CDARS should not be classified as brokered deposits and should be exempt from the brokered deposit premium "surcharge" proposed by the FDIC.  Consider the following (based on Northstar's September 30, 2008 Balance Sheet):

• Northstar offers the CDARS product only to customers who have another account at the Bank
• The Bank's cost of funds for CDARS deposits is 40 basis points less than the regular CD portfolio
• Over 84% of the CDARS customers have renewed at least once and many several times
• All funds are accumulated through the local trade area
• CDARS is a very good Community Bank program 

Although Northstar is a well-capitalized bank, under the proposed amendment, a "penalty" premium would be assessed against the CDARS deposits.  While we continuously work with our customers to help them understand the current financial environment and offer them products such as CDARS to make them feel more comfortable, it is hard to accept that the Bank's cost of insurance should be unfairly increased because of this customer accommodation.  In the vast majority of these cases, our customers would be spending a great deal of time and resources traveling from bank to bank purchasing CD's covered by the FDIC.  Most of these funds would be covered by the insurance fund anyway.

Northstar strongly encourages the FDIC not to classify CDARS as "brokered" deposits and to exempt them from the brokered deposit premium surcharge.

Thank you very much for your consideration. 

Greg Studer
Chief Operating Officer