Fedwire^® Services

Grow your business with the Joint Custody Service

September 2010

The Fedwire Securities Joint Custody Service is designed to assist state and local government entities in mitigating risk to deposits of public funds in excess of Federal Deposit Insurance Corporation (FDIC) insurance limits. The service facilitates the collateralization of deposits made by a government entity, including deposits above the current $250,000 insurance limit, through the pledging of book-entry securities by its depository financial institution. Because this service offers an efficient, cost-effective method for the management of public funds, depository financial institutions can leverage this opportunity to increase their breadth of service offerings and attract new government customers.

How a Joint Custody Service transaction works

A Joint Custody Service transaction includes three parties:

• Pledgor: A depository financial institution acts as the Pledgor, accepting deposits of public funds and protecting them against loss by depositing collateral in the form of book-entry securities. Pledgors must have both a master account and a Fedwire Securities Service account established with the Federal Reserve Banks.
• Pledgee: The Pledgee is the state or local government entity that chooses to deposit public funds with the Pledgor. The Pledgee’s funds are protected against loss to the extent the value of the book-entry securities pledged by its depository financial institution equals or exceeds the uninsured portion of the deposit. The Pledgee is responsible for confirming that the securities pledged in the Joint Custody account meet its eligibility criteria.
• Federal Reserve Banks: The Federal Reserve Banks act as the custodian of the collateral pledged by the depository financial institution. Collateral accounts are held on the books of the Pledgor’s local Federal Reserve District. The Federal Reserve Banks do not provide collateral valuation services and do not monitor the value of securities that have been pledged to the government entity.

To begin the process, a government entity deposits funds at the depository financial institution of its choice, which then pledges book-entry securities in an amount determined by the government entity to a Joint Custody account. Because the Joint Custody account is opened in the name of the government entity, such deposits would be protected if the financial institution were to fail, even if they exceed the insurance cap, so long as the collateral covers the uninsured portion of the deposit. Securities may be transferred out of the account by the depository financial institution only with prior authorization of, or approval from, the government entity.

Expand your customer offerings

In today’s changing financial landscape, risk mitigation is as critical to government entities as it is to your institution. Adding the Fedwire Securities Joint Custody Service to your portfolio of offerings broadens your new business opportunities and enables you to better serve your existing government customers. Because this service is offered by the Federal Reserve Banks, you can leverage the processes you already have in place for Fedwire Securities Service transaction processing, while offering an additional service to your customers.

Need additional information?

To sign up for the Fedwire Securities Joint Custody Service, please complete the applicable forms and agreements. You may also call the Federal Reserve Bank of Boston’s Wholesale Operations Site for assistance in setting up this service at (800) 327-0147, option #4, or contact your account executive.

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