You may have noticed that wherever Richwood Bank’s logo is present, or you hear us on the radio, there’s a “Member FDIC” said or printed next to our name. Why is that?
It’s required by law.
The FDIC stands for the Federal Deposit Insurance Corporation. This is a mandatory insurance our bank must carry to make sure every customer’s money is insured and protected up to $250,000 per account. (If you have more than this in one account, let’s talk about how to make it work more profitably for you with our investment services!)
The good news for our customers is twofold.
- First, you are a customer of Richwood Bank! So, if we were to fail as a bank, your account balance up to $250,000 is still safe. Obviously, for us, failing is not an option. We’re 150 years strong and growing each day so that in its self is a solid security and peace of mind for you.
- Secondly, in the 85 years that the FDIC has been in existence to promote public confidence in our national banking system set by our government, no customer has ever lost a single penny because of it – nationwide.
Okay, so you’re probably asking what has this to do with the Ohio Pooled Collateral System?
Quite a bit, actually.
What is the OPCS?
OPCS stands for the Ohio Pooled Collateral System. It will affect municipalities.
Municipalities are elected local government bodies, such as county treasurers and townships. Their money comes from publicly-generated funds. This means banks must treat their accounts different than a typical retail customer account.
As you know, many counties, school districts, etc. have a lot of people, not only living in them, but also working for them, which means their account balances can be much higher than the maximum the FDIC will promise to insure if a bank closes – $250,000.
Their funds also move around a lot – collecting taxes, paying employees and benefits, paying into the state or federal governments. Millions of dollars could go in and out of some of these larger entities’ accounts.
For example, let’s say at tax time a county has $10 million dollars collected from all businesses and residents. They would need to have 40 checking accounts of $250,000 to be fully insured by the FDIC. Imagine how hard that would be to manage! Especially when it will be reallocated and dispersed within the county to all the departments that receive funding!
Prior to the OPCS, banks in Ohio were required to pledge security investments of the bank to cover the excess of the FDIC limit for each of their municipal, or public funds, customers’ accounts by 105%. Banks earn their income on the margin between the interest they pay for customer deposits and the interest they earn on investing or loaning these funds. Because of the 105% pledging requirement, banks could not loan public money deposits and as a consequence earned lower returns.
How it affects you
As a result banks were not able to offer higher deposit rates to municipalities because of the lower returns earned on public money deposits. Stepping back even further, this affects the taxpayer who is seeing less bang for their buck as well.
The State of Ohio Treasurer’s office created the Ohio Pooled Collateral System to reduce the pledging restrictions on municipal funds. If a municipal opts into the pooled collateral system governed by the state, then a qualified bank can reduce the pledging requirement from 105% to only 50%.
The additional funds can then be leveraged through investments or loans, and in turn, banks can offer a higher interest rate to the municipal to earn more on their funds.
OPCS is now a way to pool together all public funds into a larger, transparent group so that managing it will be streamlined and more efficient.
Richwood Bank helps develop OPCS
The State invited six strong, trusted banks (out of the 200 possible banks in Ohio) to participate in the development of the program and how it should work best. Richwood Bank was one of those chosen. Our IT and Finance teams were also individually chosen to be at the Treasurer’s office for testing how networking all counties and gathering funds into a transparent pooled system would work, and remain 100% secure.
On July 1st, 2017, the new program became live. Now, municipals can sign up and participate in OPCS. We are sure there will be new processes learned and more ideas realized as we begin to assist with onboarding of our municipal customers, but we couldn’t be more amped to help lay the groundwork for a more profitable Ohio. Here’s to making the most of our tax dollars!