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Frequently Asked Questions
Can Philanthropy Bring $50 Million to Community-Based Finance?
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  • What is the Carry the Cash campaign? Carrying your foundation’s cash from a typical commercial bank to a financial institution with a mission oriented agenda is an easy and costless way for your organization to carry out its mission related investment goals.  Your foundation can make insured cash deposits of up to $250,000 in local community financial institutions, credit unions, or regional banks. These investments are low-risk often FDIC insured investments that offer competitive rates of return while furthering an organizations philanthropic missions.

  • Why should your foundation Carry its Cash? Moving your foundations’ cash to a mission related bank is one of the simplest ways your foundation can use its working capital to service the very same issues and population that grants are made around every day.

By moving your cash and investing through cash deposits and Certificates of Deposits (CDs) in institutions that are locally or mission focus your capital will;

  • Provide capital to low-income borrowers and local businesses with sustainable or regional initiatives
  • Earn comparable returns with FDIC ensured deposits and CDs
  • Provide your foundation with more personalized customer service and services that could impact your mission in unexpected ways
  • Place pressure on commercial banks to support local or mission related causes

  • Deposits and The Multiplier Effect  While some of you may know the power of cash deposits it is important to realize the actual impact that a cash transfer can have. Simplistically, when a deposit is made at a financial institution, the bank is only required to keep a certain amount of cash on its books and is free to lend out the rest. This reserve ratio is often used to determine the potential multiplier effect of deposits.  Thus, if the bank reserve ratio is 20 percent, the multiplier effect is the inverse of 1/20% or five.  Thus a $100 deposit has the potential to achieve $500 of loans or new business activity.

  • Local Banks Drive Economic Growth  Small community banks are actually using deposits they way in fact they were meant to be used in a modern banking system as they are making loans to local businesses at a much higher rate than national banks. In 2011 approximately, 6,900 small, locally owned banks controlled $1.4 trillion or 11 percent of all bank assets and had $257 billion in loans to small businesses and farms on their books. On the other end, the four largest banks—JP Morgan Chase, Bank of America, Citibank, and Wells Fargo—commanded $5.4 trillion in assets, or 40 percent of the total and had only $85 billion in small-business and farm loans on their balance sheets.

The reason for this is that small-business loans are not so easily mechanized.  Each loan requires human judgment to evaluate the risk associated with a particular entrepreneur, a particular business plan, and a particular market. Community banks excel at this. Their lending decisions are made locally, informed by face-to-face relationships with borrowers and an intimate understanding of their hometown economies. Big banks, whose decision-making is long-distance and dictated more by computer models than judgment can not possibly be good at this and thus they make very few loans.

  • Insurance Options
  • Certificates of deposit (CDs) with CDIFs are FDIC-insured up to the federal limit of $250,000.
  • The Certificate of Deposit Account Registry Service (CDARS) member network allows participating CDIFs access to FDIC insurance on deposits of up to $50 million. 
  • The National Credit Union Share Insurance Fund (NCUSIF) is the federal fund created by Congress in 1970 to insure members’ deposits in federally insured credit unions. The insurance limit was permanently increased from $100,000 to $250,000 per individual depositor on July 21, 2010.

The Federation of Community Development Credit Unions offers a nominee deposit program that assists investors in placing insured deposits throughout its U.S. credit union network.

In addition to the insurance options mentioned above, there are several other insurance mechanisms available to investors on both their operational accounts and certificates of deposits. For example, some CDFIs may purchase additional insurance from the FDIC. While cumbersome, CDFIs may offer this supplemental insurance option to investors to facilitate a larger dollar amount on their CDs. A CDFI may also collateralize the deposits with securities through what is referred to as a "repo sweep” arrangement, which offers nightly collateralization of deposit through the purchase of securities.