MBIA Corp. Sells First Surety Bond To First Chicago, Freeing Collateral
Municipal Bond Investors Assurance Corp. yesterday announced it sold to First National Bank of Chicago its first surety bond guaranteeing the safety of municipal deposits.
The surety product, known as Assurety, will enable First National of Chicago to free up collateral that otherwise would have to be held against the funds deposited by public entities. Officials at MBIA and First National would divulge neither the size of the bond purchased nor the fee paid.
Although the program guarantees the deposits on hand -- up to $130 million -- the bond is a transaction between MBIA and a given bank. James E. Malling, senior vice president and director of corporate marketing and new products at MBIA, said only the "highest quality, top-drawer banks" will qualify for Assurety.
The incentive for banks, Mr. Malling said, is the ability to devote precious capital to other, more profitable endeavors, rather than to securing municipal assets. In addition, MBIA provides software programs to participating banks that allow them to mark to market the value of the guaranteed deposits. Four or five banks are currently close to closing similar deals with MBIA, he said.
For the issuers, the deposits are gaining no additional security, since the program is being offered only in states where collateralization of assets is required. In event of a claim, MBIA would pay all losses immediately and then collect the $100,000 Federal Deposit Insurance Corp. coverage directly from FDIC.
Mr. Malling emphasized that only the best banks, according to a series of financial strength tests undertaken at MBIA, will qualify.
"This program will never get into the banks who stand a chance of disappearing in the middle of the night," he said. "We'll never expose ourselves to that kind of risk."
The Assurety program was not inspired by the threat of bank failures in troubled regions such as the Northeast, he added, but rather was developed as a means to assist banks in more profitable ways of dedicating capital.