Bankers' bank makes state's CD program more attractive

Northwestern Financial Review, Nov 8, 1997

A record number of banks are participating in the state of Wisconsin's Investment Board certificate of deposit program, thanks to a new arrangement made through Bankers' Bank in Madison.

Approximately 100 Wisconsin banks hold more than $200 million in CDs for the Investment Board, up from a couple dozen banks that held less than $100 million before the program was revamped this spring.

Bankers' Bank had been trying to secure an arrangement with the Investment Board ever since it started pooling excess funds for municipalities years ago. The Investment Board is charged with getting the best return for Wisconsin counties, cities and towns on their excess funds. In general, the Investment Board can get a better return than individual municipalities because it has more buying power with the large sum of pooled funds, than municipalities have with smaller sums of money to invest.

Bankers, however, have long complained that the Investment Board drains funds out of communities. Money that otherwise would be invested locally is being invested elsewhere. Acknowledging the concern, the Investment Board originally designated up to $300 million out of its $50 billion in funds go to purchase certificates of deposits from Wisconsin banks. Initially, the Investment Board administered the CD program on its own and a number of organizations, including Bankers' Bank, called on the Investment Board claiming it could do a better job.

This spring, the Investment Board reached an agreement with Bankers' Bank. For a fee, Bankers' Bank meets with Investment Board officials monthly to determine an equitable rate of interest to be paid on the CDs. Bankers' Bank informs all banks in the state of the rate and the amount of funds available. Interested banks contact Bankers' Bank on a designated day to request the funds. The program, which previously had been entirely paper-based, has been converted to a book entry electronic system under Bankers' Bank's administration.

The program also became more attractive when the Investment Board agreed to buy CDs at a greater variety of terms and denominations. Previously, the minimum amount was $100,000 but now the Board will buy a CD for as little as $25,000.

Helge Christensen, president and CEO of Bankers' Bank, said his institution was a natural for administering the Investment Board CD program. He noted that Bankers' Bank has been handling similar programs for Dane County and the city of Madison for some time. He also said Bankers' Bank already had contact with nearly every bank in Wisconsin. The CD program required Bankers' Bank to contact every bank in the state, which gives Bankers' Bank an opportunity to build relationships with non-customers.

Christensen said the program currently has more than $200 million in CDs, which he said is high considering fall is generally a period when liquidity is good and demands for cash are low.

When setting interest rates, Christensen said the Investment Board weighs its obligation to the municipalities to get a good return, and its desire to get the money broadly distributed among Wisconsin banks. Christensen said the rate is generally one that bankers find attractive.