The Institutional Risk Analyst

Not all banks or companies are the same and not all follow the herd.

The driving rule behind public depositor overcollateralization was the implementation of the US version of Basel III’s Liquidity Coverage Rule (LCR). It was structured such that a bank gained no operational liquidity for taking municipal deposits. Roughly, every muni deposit dollar had to be collateralized with a low yield high quality liquid asset. The net net interest margin (NIM) for the silo is zero.