NYBA Supports Increasing FDIC Insurance Coverage

The New York Bankers Association (NYBA) sent a letter to Governor Cuomo urging that he sign legislation which NYBA strongly supports (A.8971(Magnarelli)/S.5135(Martins)) that would authorize the State of New York, its local governments and public authorities to use reciprocal deposit services to increase the FDIC deposit insurance coverage of municipal deposits.  In the letter, the NYBA  points out that use of such security – which is already allowed in 47 states and the District of Columbia - would increase funds available for local lending, reduce the costs of managing deposits for the State and its constituent depositories, and increase the speed of recovery of any public deposits in a bank failure.  Because all deposits in excess of the FDIC insurance limit need to be fully collateralized in New York, permitting New York banks to participate in a reciprocal deposit service could eliminate the need to collateralize more than 90% of all deposits held by New York local governments.  In addition, increasing deposit insurance coverage from the current level of $250,000 per account to the maximum $50 million level would free up billions of dollars of local government deposits.  These funds could then be available for small business, mortgage, consumer and other loans in the local communities from which the deposits are drawn.