Time To Take A Second Look At NY’s Excelsior Linked Deposit Program

In life and politics, timing is everything.

In 2021, New York credit unions achieved a major victory when legislation was passed finally allowing both federally and state-chartered credit unions to participate in the Excelsior Linked Deposit Program (LDP).  Under this program, the state subsidizes the cost of small business loans to qualifying small businesses by providing state funds to lending institutions in return for reducing the interest rate charged to the qualifying business. 

For years the banks had argued that credit unions shouldn’t be allowed to help these small businesses because participating credit unions would receive public funds.  As a result, financial Armageddon would come to New York State with community banks dying away quicker than the dinosaurs. 

The catch is that in 1993 we were experiencing the tail end of a high interest rate cycle.  For example, the yield on the Federal Fund Rate was 3.02% and the average 30-year mortgage rate was 7.31%.  Fast forward to 2021, the Federal Fund Rate was 0.08% and mortgage rates were 2.96%.  Needless to say, more than a few credit unions ran the math and questioned the utility of this product. 

So, I’m just here to remind you this morning that with interest rates heading towards levels we haven’t seen since at least the late 80’s, now is the time to take a second look at the Excelsior Linked Deposit Program.  It is a great way to help qualifying businesses at a time when we need to be providing all the help we can and enables credit unions to offer access to a lending product that can help develop their small business lending portfolios while at the same time demonstrating that giving credit unions access to public deposits is a good thing for consumers. 

Here is an example, provided by New York State’s LDP Office, of how the program works:

Loan Amount: $87,000  (e.g. purchase of a business vehicle)

• Loan Term: 5 years

• Regular Bank Rate: 4.96%

• 4 Year CD Rate: 1.25%

• Linked Deposit Interest Rate: 3.71%

• Total Savings Over 4 Years: $2,819

If you are interested in finding out more about the program, and I know after reading this pithy blog, you are, you can give the Association a call or you can go to the ESD/LDP web page: http://esd.ny.gov/BusinessPrograms/LinkedDeposit.html

On that note, stay cool.