Banks using the IntraFi Network can spread customer deposits across multiple other banks to ensure that each segment of the balance receives the FDIC’s full $250,000 insurance. iStock photo

While the March banking sector turmoil has raised questions about whether the FDIC should guarantee higher deposit balances, some banks have already found ways to insure their customers’ deposits.  

Smaller Massachusetts-chartered savings banks offer extra coverage through the Depositors Insurance Fund, but larger or federally-chartered institutions have turned to the IntraFi Network and other technology solutions that use shared resources to spread deposits among multiple banks. 

For banks like Cape Cod 5 and Arlington-based Leader Bank, a tool used once used in limited scenarios has become part of standard discussions with customers. 

“We are using it on the front lines as part of the sales process when we’re talking to a larger-balance client,” said Jay Tuli, president of Leader Bank. 

How IntraFi Works 

IntraFi, known until 2020 as Promontory Interfinancial Network, was founded 20 years ago by former banking regulators as a network for banks to reciprocate deposits.  

Banks using IntraFi can spread customer deposits across multiple other banks to ensure that each segment of the balance receives the FDIC’s full $250,000 insurance. Through their primary bank, customers will see online each of the banks holding their deposits, but all banking still happens with the primary bank. 

Banks have two options for sharing deposits through IntraFi. The most common option is IntraFi Cash Services, or what some banks call “insured cash sweep.” It lets banks reciprocate deposits in accounts that remain liquid for customers. CDARS – Certificate of Deposit Account Registry Services – puts money into CDs with terms ranging from a few weeks to three years.  

Since the IntraFi network shares the deposits, banks do not lose a funding source for lending. Banks can also choose not to reciprocate with certain banks. 

More than 3,000 banks nationwide are members of IntraFi, and the company does not charge banks a fee to join. An annualized fee is instead assessed on the funds banks put into the network. 

Like many banks, Cape Cod 5 covers the fee rather than passing it on to customers, said Matt Burke, the bank’s CEO. 

No Longer a Niche Solution 

Before the Silicon Valley Bank and Signature Bank failures, Cape Cod 5 primarily used IntraFi for municipal deposits that exceeded the FDIC limit but required either insurance or pledged collateral from the bank. 

Because of its size, the $5.2 billion-asset Cape Cod 5 had to exit the Massachusetts Depositors Insurance Fund. Most customers did not need the excess insurance, since 97 percent of Cape Cod 5’s more than 100,000 customers have less than $250,000 with the bank and therefore have full FDIC insurance, Burke said.  

Once Silicon Valley Bank went into receivership, Burke said, the bank began contacting customers to let them know how it could use IntraFi to protect their money. For some customers, understanding that Cape Cod 5 is a mutual bank with a diversified business model – unlike the banks that failed – provided enough satisfaction that the bank was financially sound, Burke said. Others did decide to take advantage of IntraFi services.   

Excluding deposits on IntraFi, less than 20 percent of Cape Cod 5 deposits did not have full FDIC insurance. With $420 million in deposits on IntraFi, the bank now has about 87 percent of its customers’ deposits covered by the FDIC.  

“In our opinion, the full FDIC is preferable because it’s obviously backed by the full faith and credit of the U.S. government as opposed to a private insurance fund,” Burke said. “So, customers have felt good about IntraFi as an option.” 

A Replacement for DIF Insurance 

Because Leader Bank has a federal bank charter, it was never a DIF member. When Silicon Valley Bank and Signature Bank failed, customers started asking about the DIF, Tuli said. In response, staff members have been explaining that IntraFi can ensure all their deposits receive FDIC insurance, instead. 

Leader Bank had joined IntraFi about five years ago, Tuli said. The bank would offer the service to high-net-worth customers and large commercial clients that required insurance or collateral on deposits. 

Diane McLaughlin

“[IntraFi] obviously didn’t have the popularity it has now, because now everyone’s thinking about it, of course, but we were very active with it,” Tuli said. “Now, of course, it’s front and center of mindshare.” 

Most clients with large balances are satisfied with IntraFi, Tuli said, though some firms have seen their boards of directors require that separate accounts be opened at different banks.  

Both Tuli and Burke said their banks’ deposits have grown since the Silicon Valley and Signature failures. 

The bank failures also provided an opportunity for local bankers to see IntraFi in action, since Silicon Valley Bank was also a member. 

“Seeing how IntraFi worked during the SVB crisis was really great, because it really worked without a hitch,” Tuli said. “Some of their networked funds were at SVB, and they were able to transfer it right away. It proved the model a bit, so that was kind of nice.”