Welcome Back! As Jumbo Rate News enters its 40th year in publication, we thought it would be a good time to look back to how we got here. Let’s set the stage:
- The year was 1983;
- Ronald Reagan was President;
- Paul Volcker was the Chairman of the Federal Reserve;
- the FDIC was turning 50;
- Gas was 90 cents a gallon; and
- the Dow hit a high of 1,287.
An oil crisis in the Middle East led to an oil boom in Texas, while other, seemingly unrelated, events combined to create the environment for reckless banking. Deregulation removed upper limits on what banks could pay in interest on deposits; and FDIC insurance protection increased from $40,000 to $100,000 in 1980.
These actions combined to create a new ($100,000) FDIC-insured Jumbo certificate of deposit. Paul Bauer was one of a select few who realized that the rates on these new Jumbo CDs varied widely by region.
Where land could be improved and sold with high profit margins, banks could afford to pay higher rates on CDs. These FDIC-insured deposits went to develop that land, and the financial condition of the offering bank was of little concern… except to Mr. Bauer.
In the hopes of preventing this type of speculation, Mr. Bauer insisted on evaluating the health of the institution prior to allowing a bank to list its rates in his newsletters. He was alone in this practice. If he did not consider the institution to be “credit-worthy”, he would not list it.
While much has changed in the past 40 years, Bauer’s strict standards have not. All CD rates you find listed on bauerfinancial.com and in Jumbo Rate News are offered by banks that are rated 3½-Stars or better by Bauer.
We’ve witnessed several financial crises in the past 40 years, but because of this practice, our customers have been largely unaffected. Our aim is that no one be adversely affected by placing deposits into a federally-insured depository. We’re still working on it.
When FDIC insurance coverage was increased to $250,000 (October 2008) our job should have become easier. Now, assuming a single name on the accounts, $1 million can be divided into just four banks and be fully insured, sans interest. Four is certainly much easier than 10. Yet, 95% of U.S. banks report at least some amount of uninsured deposits.
We will continue making our star ratings available, at no charge on our website, and we’ll keep getting the word out. With so many strong banks in this country, there is no need to have deposits, particularly uninsured deposits, at one that is sub-par.
This week, for example, we have 52 community banks listed on page 7. Each reported more than 150% growth in Jumbo CDs in the nine-months ending on September 30, 2022. Most are well-rated, but not all. One is even on our Troubled and Problematic Bank Report.
Interestingly, very few of the banks on page 7 can be found on the rate pages of Jumbo Rate News. 4-Star Timberline Bank, Grand Junction, CO explains why: “deposited funds are used to provide loans in the communities we serve, and since we are a relationship bank, deposit rates are based upon our relationship...”
The future of “community banking” is a return to its roots: personal relationships. It is something we are very happy to see… even if it does mean fewer banks on our rate pages.
JRN is also going back to its roots—to list rates at credit-worthy banks that accept corporate deposits nationwide. While we have never veered from our commitment to list only healthy (or credit-worthy) institutions, banks that limit their deposit gathering to their local market will no longer be included in our weekly surveys (or on our rate pages).
When we began adding these banks as a service, we did not realize it would become a source of confusion. Therefore, from now on, every bank listed on these pages should accept your corporate deposits. If one does not, please let us know.
You can still use JRN to your advantage locally by using it as a negotiation tool. If you have a relationship with the bank already, your chances will be even greater. There are eight banks within walking distance of our main office in Coral Gables, Florida. If we took the current JRN to all of them and showed them the rates, chances are good that at least half would offer something better than their board rates. You won’t know until you ask.