The STAR Plus program uses New York-based investment firm StoneCastle Cash Management to break up large deposits into smaller amounts that are eligible for FDIC insurance and places them in accounts at several banks. StoneCastle places some funds in banks that offer high interest rates, generating a higher return than is possible with STAR Ohio, the state’s pooled investment program.
Ohio Treasurer Josh Mandel announced the program in June 2012. Since then, 264 cities, townships, school districts and other municipalities have transferred up to $15 million each from their STAR Ohio accounts to STAR Plus.
Mandel has touted the program as a win-win-win: local governments get a higher return, taxpayer money is protected by FDIC insurance, and more money stays in Ohio banks.
But only 35 Ohio banks have signed up to hold deposits in the program, according to records provided by the Ohio treasurer’s office. Each bank held about $487,000 each, on average, and sponsors of the legislation that made the program possible say STAR Plus was never the goal.
Michael Gampp, president and CEO of American Savings Bank in Portsmouth, said the law should have allowed smaller banks like his to raise deposits. Gampp, whose bank held $520,500, the seventh-highest amount of the participating Ohio banks, said the program has not been a boon for business.
“We really haven’t gotten anything out of it so far,” he said.
Program praise
Treasurer’s office spokesman Chris Berry said the mission of the STAR Plus program is not to improve business for Ohio banks. In an email, Berry noted that the program is completely optional for banks and municipalities.
“We hope that more Ohio banks choose to participate in the program in the future, but we do not think it is the role of government to mandate them to do so,” Berry said.
Mandel has mentioned the program’s boost to banks with reporters and local officials while traveling the state. The support for Ohio banks appears in STAR Plus press releases, except the latest on Feb. 28 — two weeks after the Daily News first requested information about the banks and the state’s holdings.
Bob Palmer, spokesman for the Community Bankers Association of Ohio, said it’s too early to judge whether STAR Plus is helping Ohio banks. Palmer said a few banks join the program each month, a more important sign than how many dollars are held in each.
“Any Ohio money that stays in Ohio and works in Ohio is better for all of us, whether it is $20 million or $200 million,” Palmer said. “We feel very confident of the program and its ability to grow and add community banks as time goes on.”
Gampp said STAR Plus competes with what his bank offers and potentially takes money that would have gone to his bank, so he signed up hoping to get at least some of it back.
“It hasn’t harmed us, but it hasn’t helped us in any way,” Gampp said.
New law
STAR Plus became possible after a bill allowing municipalities to break up deposits was signed into law in 2011.
The bill was backed by the Ohio Bankers League, whose members include two-thirds of the Ohio banks participating in STAR Plus.
Mike Adelman, vice president of state government relations for the Ohio Bankers League, told the Daily News the bill was not intended to create STAR Plus or another government-run product. Adelman said the bill’s supporters envisioned a free-market approach where banks could choose to split deposits for their clients similar to what StoneCastle does.
“We didn’t see the need for the state to create a program to put out there to compete with the private sector,” Adelman said. “The treasurer’s office saw an opportunity to set something up that would fit within the parameters of the law.”
The FDIC insures deposits up to $250,000 per bank. The STAR Plus algorithm makes sure deposits do not exceed this limit. Some deposits are as little as a few dollars or cents.
Twenty-five Miami Valley municipalities have invested more than $80 million in the program. One Miami Valley bank is benefitting from the program, but only holds $100 of the program’s deposits.
Palmer said participation among community banks might be low because loan growth has been slow and banks don’t need to seek out deposits to fulfill that demand.
“As the deposits grow, putting that money back in Ohio is certainly the ultimate goal,” Palmer said. “We are comfortable about where it’s at as far as the program is concerned.”
Gampp, who has worked with several state treasurers, doesn’t have much faith in the program. He said he has worked well with the current treasurer, but the office is often used as a springboard to higher elected office and new programs can be used in pitches to voters.
“Sometimes different politicians come up with programs,” Gampp said. “We sign up and wait and see, then the office changes or the outlook changes.”
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