Exploiting FDIC Loopholes Enriches Former U.S. Bank Regulators

Sept. 25 (Bloomberg) -- As chief of staff of the Federal Deposit Insurance Corp. from 1999 to 2002, Mark Jacobsen was responsible for a safety net that protects U.S. savers. He now runs a company that critics say is designed to stretch that net to its breaking point.

Jacobsen, 42, is president and co-founder of Arlington, Virginia-based Promontory Interfinancial Network, a company that makes it easy for a wealthy depositor to keep FDIC-insured cash in separate accounts at multiple banks. It offers customers up to $50 million of FDIC insurance, 500 times the single-account limit approved by Congress.

``When I first saw Promontory, I was amazed that the regulators would let it fly,'' says Sherrill Shaffer, a former chief economist at the New York Federal Reserve Bank. ``It undermines a lot of the safeguards around the FDIC deposit fund. I'm astounded that the FDIC has not picked up on that and tried to shut down that loophole.''

The loophole Promontory exploits is the FDIC rule that allows an individual to open up federally insured accounts of up to $100,000 at an unlimited number of banks.

Promontory has contracts with 2,350 banks. It advertises to wealthy investors who want to insure more than $100,000 in certificates of deposit. Customers tap into Promontory's network through their home banks.

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My mom is using a service like this. The life insurance she received when my pop died is what she is living on and this keeps her from having to go from bank to bank keeping an eye on her cd's.