The CUNA CFO council reports about generating income through ATM funding.
(emphasis mine) [my comment]
Generating Income through ATM Funding
December 29, 2004
Banc Investment Group has launched a first-of-its-kind ATM funding program to help independent banks generate fee income from excess liquidity on their balance sheets. ATM Cash Advantage enables banks to advance up to $400 million in currency to more than 17,000 nonbank ATMs around the nation, including those based at convenience stores, airports, gas stations, and casinos. In return, member banks can generate
fee [interest] income equal to 50 basis points above the Federal Funds rate.
Banc Investment Group, the broker-dealer unit of the Pacific Coast Bankers' Bancshares (PCBB) of San Francisco, matches local ATMs with participating regional banks to keep the machines stocked with cash.
"Before banks had to struggle to use their liquidity," says Chris Nichols, who is a co-CEO, along with Steve Brown. "The beauty of this flexible program is that banks can make a good spread. Bank ABC takes their money and puts it in 25 ATMs in their area. The ATM provider keeps the surcharge, but they also get charged a
fee [interest] to use the cash."
And if Banc Investment Group has its way, these banks may soon be allowed to reduce their own vault cash balances under Regulation D. PCBB recently requested the Federal Reserve to review the regulation. The program may also help banks comply with the Community Reinvestment Act under the service-test provision, say PCBB officials.
Banc Investment Group and PCBB will raise cash from participating banks and manage the partnership with Palm Desert National Bank, which supplies cash and management services to more than 10,500 ATMs nationwide. PDNB's local and national operations use its proprietary ATM Trakker, which tracks activity at each of its ATMs. PDNB has ATM service centers in California and Louisiana. PCBB handles collection of assets from individual banks, which is transferred electronically, provides on-line access to accounts, and generates monthly reports to member banks. Palm Desert National Bank manages the program's operational issues, as well as armored car and ATM security issues.
All 12 of the banks signed up for the ATM program have been enthusiastic, says Nichols. "They all think it's great," he says. The participating dozen include Pacific Capital Bank in Santa Barbara, California, and Butte Community Bank in Chico, California.
"ATM Cash Advantage unlocks frozen assets on the balance sheet
without [by] incurring credit risk and enables banks to generate fee income in this challenging environment," says Nichols. "By pooling money from many institutions, Banc Investment Group is creating a powerful syndicate of independent banks that can provide substantial liquidity for ATMs, while giving bankers a low risk opportunity to increase revenue." By leveraging the collective network of independent banks, the program allows "owners of ATMs to take advantage of immediate economies of scale," points out Kevin McGuire, chairman of Palm Desert National Bank, in Palm Desert, California. PDNB declined to discuss how Palm Desert is compensated.
Participating banks retain the title and interest to their cash, which can legally be treated as an asset until it is dispensed from the ATMs. They can also monitor cash disbursement, check advance status, and get individual ATM reports on-line. PDNB's software predicts when certain ATMs will run out of cash, based on past behavior at that machine. And since the biggest risk in keeping ATMs stocked with cash is that of theft when the delivery trucks are on the road and the handlers are doing the actually filling, tapping local banks makes a lot of sense.
ATM locations will vary by geography, vendor selection, and type to offer the greatest diversification and the lowest risk possible, says Nichols, who notes that the program's risk is similar to that of banks' in-house ATM programs and can be summarized in terms of settlement and insurance. To mitigate operational risk, the program has multiple layers of insurance from AAA-rated national insurance carriers and uses PDNB's proprietary software platform, which provides near real-time reconciliation of ATMs, armored carriers and cash vaults. In addition, the program uses technology from vendors like Concord EFS, Genpass, Fiserv, Brinks, Loomis, Bantek and Premium-EF Mark.
"Casino ATMs are some of the most highly transacted machines," says Nichols. "They carry a lot of money, and before one bank would have to take the risk in the event of earthquake or whatever. But this program helps spread the risk throughout the financial system."
Cardtronics provides a sample ATM vault cash agreement.
ATM VAULT CASH AGREEMENT
THIS ATM VAULT CASH AGREEMENT ("Agreement") is entered into as of February 1, 2001 between First Bank and Trust ("FBT"), a Louisiana financial institution and Cardpro, Inc. d/b/a Cardtronics, a Texas Corporation ("ATM Owner").
A. ATM Owner leases, owns or otherwise controls various automated teller machines.
B. FBT is a contractual party to agreements with regional and national organizations that establish rules for the placement, settlement and transmission of automatic teller machines and their data (the "Networks").
C. ATM Owner desires to enter into a cash arrangement with FBT pursuant to which FBT will place vault cash of FBT in certain automated teller machines of ATM Owner (the "ATMs").
D. Columbus Data Services, LLC. ("CDS") may act from time to time as an independent contractor on behalf of FBT with respect to FBT's agreements hereunder.
THEREFORE, in consideration of the premises, ATM Owner and FBT agree as follows:
1. Vault Cash.
(1) ATM Owner agrees to allow FBT to
place FBT's vault cash ("Vault Cash") in the ATMs [lend cash to ATM owners/managers] from time to time in such amounts as FBT may desire. FBT shall arrange for Vault Cash to be delivered by FBT's designated carriers to specific ATMs at specific locations as agreed to from time to time by FBT and ATM Owner. FBT shall approve all designated carriers, and such approval will not be unreasonably withheld, that will handle FBT's Vault Cash and will approve the location of any ATMs subject to this Agreement.
(2) ATM Owner agrees that at all times the Vault Cash shall be the property of FBT [Complete BS], and ATM Owner agrees to indemnify and hold harmless FBT for any damage to, or loss of, Vault Cash delivered to any ATMs until the Vault Cash has been successfully returned to FBT or its designated carrier.
(3) At all times FBT shall have the full ownership, title, use, rights and benefits to all Vault Cash located in any ATM. [This is COMPLETELY ABSURD. The key aspect of ownership is the right to dispose (sell, give away, dispensed, etc...) of an asset. 3rd party ATMs are allowed to dispense "vault cash" provided by banks without obtaining permission of those banks, which means they have ownership of that cash. Banks can't give away ownership (right to dispose of an asset) while at the same time claiming full ownership.
(4) ATM Owner agrees that all Vault Cash can be retrieved from any ATMs by FBT at FBT's sole discretion and option and without consent from, or notice to, ATM Owner.
(5) All Vault Cash placed in any ATM shall at all times be the sole property of FBT and shall not be subject to any manner of set off rights, lien, security interest, attachment, seizure or other process or agreement by or relating to the property of ATM Owner. ATM Owner shall take all necessary steps to identify and protect FBT's ownership rights in the Vault Cash.
(6) All Vault Cash placed in an ATM pursuant to this Agreement will be considered "vault cash" of FBT for the purposes of reporting pursuant to Regulation D of the Federal Reserve Board (12 CFR 204) until such time that the currency may be dispensed from an ATM [If "vault cash" can be dispenced from an ATM, without a bank loan]. ATM Owner shall not report, treat or consider such currency as "vault cash" for any reporting purposes or otherwise.
(7) ATM Owner shall furnish such assistance as FBT may reasonably request in order for FBT to comply with any regulatory, record keeping or reporting requirements applicable to FBT with respect to the ATMs or the Vault Cash. [Translation: ATM Owner will help FBT pretend that the ATM loan isn't a loan.]
ATM Owner shall allow FBT and its designees, including any regulatory or supervisory body to which FBT may be subject, at ATM Owner's cost and expense to examine any books, records and ATM facilities that FBT or its designees may deem appropriate in order to determine compliance with the terms of this Agreement and applicable laws and regulations. ATM Owner shall allow FBT or its designees access to any audit reports conducted by ATM Owner or its agents with respect to the ATMs. FBT shall have the right to perform such inspections and audits as FBT, in its sole discretion, deems necessary, and ATM Owner shall bear any and all expenses associated with the audits. In the event of any financial discrepancies, FBT's records of amounts of Vault Cash placed in an ATM or disbursed to a designated carrier, amounts received by FBT and amounts owed by ATM Owner to FBT shall be conclusive and binding, absent manifest error in computation.
11. Term and Termination.
This Agreement shall be effective for four (4) years from the date set forth on page one hereof and shall be automatically extended for successive annual renewal terms, unless either party shall deliver written notice to the other party of cancellation at least sixty (60) days prior to the end of any term; provided that FBT may cancel this Agreement for cause or regulatory need upon twenty-four (24) hours notice.
This Agreement shall be automatically terminated immediately if its continuation would result in a violation of any law or regulation, or if a regulatory authority determines, through staff opinion or otherwise, that currency placed in an ATM or with a designated carrier(s) pursuant to Section 1 of this Agreement is not "vault cash" as defined in 12 CFR 204.2(k) of Federal Reserve Regulation D.
SEC filings of Global Cash Access Inc show that, like deposit reclassification, all major banks are involved in this regulatory fraud.
GLOBAL CASH ACCESS, INC.
ATM Funding Agreements—The Company obtains all of the cash required to operate their ATMs through various ATM Funding Agreements described in Note 3. Under the terms of these agreements, neither the cash utilized within the ATMs nor the receivables generated for the amount of cash dispensed through transactions on the ATMs are owned or controlled by GCA [GCA has cash in its possession and is legally allowed to dispense without the consent of the bank supplying the cash. For all intents and purposes, GCA owns the cash in its ATMs, whether it admits it or not]. Therefore, these amounts have been excluded from the unaudited condensed consolidated balance sheets.
ATM FUNDING AGREEMENTS
Wells Fargo Vault Cash Custody Agreement— On November 17, 2003, the Company entered into a Vault Cash Custody Agreement [These agreements are legal fraud] (the "Agreement") with Wells Fargo Bank, N.A. ("Wells Fargo") to provide the currency needed for normal operating requirements for all the Company's ATMs [Right here, Well Fargo, by transferring the right to dispose /dispense cash for "for normal operating requirements" of "all the Company's ATMs", is transferring control and ownership to GCA]. This agreement provides up to $300 million in the Company's ATMs [This is a substancial amount. Considering that all major banks have signed several of these agreements, the total amount of loaned "vault cash" is undoubtedly in the tens of billions], and replaced the existing Bailment Agreement between the Company and First Data. As part of this agreement, the Company agreed that Wells Fargo shall have absolute control over all of the cash and the settlement receivables resulting from ATM transactions at all times [This is a FUNDAMENTAL CONTRADITION. Wells Fargo can't transfer control and ownership of cash to GCA while at the same time retaining "absolute control over all of the cash".]. Under the agreement with Wells Fargo, GCA was to pay a monthly funding fee [ie: monthly interest fee] to Wells Fargo equal to average daily dollars outstanding in all ATMs multiplied by the average Federal Funds rate published by the Federal Reserve Bank of San Francisco for the month plus a margin of 30 basis points multiplied by the number of days in the calendar month. [This is a interest-charging cash loan, no matter how you look at it.]
On March 4, 2004, the Company amended the Agreement with Wells Fargo to provide the currency needed for normal operating requirements for all the Company's ATMs. Under terms of this amendment, Wells Fargo agreed to not exercise their right to terminate the Agreement for a period of 120 days and the interest rate utilized in the monthly funding fee computation was changed from average Federal Funds rate for the month plus a margin of 30 basis points to LIBOR plus 300 basis points. Until the services were terminated, the Company was also required to maintain a $5.0 million letter of credit as security for the performance of GCA's obligations under the Agreement. Services under terms of this agreement and the letter of credit securing GCA's obligations were terminated in June 2004.
Bank of America Amended Treasury Services Agreement—On March 8, 2004, the Company entered into an Amendment of the Treasury Services Agreement with Bank of America, N.A. that allowed for the Company to utilize up to $300 million in funds owned by Bank of America to provide the currency needed for normal operating requirements for all the Company's ATMs [Again, Bank of America is giving up control and ownership of cash to GCA]. For use of these funds, GCA pays Bank of America a cash usage fee [cash usage fee = interest] equal to the average daily balance of funds utilized multiplied by the one-month LIBOR rate plus 25 basis points. The cash usage interest rate in effect at September 30, 2004 was 2.03% [See? Even GCA's FORM 10-Q admits that the "vault cash" is being loaned with its use of the term "cash usage interest rate" (interest is only charged on loans).]. The transition of the ATM funding from Wells Fargo to Bank of America was completed June 8, 2004.
TRM Corporation is a consumer services company that provides convenience ATM services in high-traffic consumer environments. TRM's ATM customer base is widespread, with retailers throughout the United States. TRM operates one of the largest non-bank ATM networks in the United States.
Below is TRM Corporation's Consolidated Balance Sheet. Notice the ridiculous restricted cash TRM Corporation has listed as an asset.
Consolidated Balance Sheet
Accounts receivable, net
Prepaid expenses and other
Deferred financing costs
Restricted cash - TRM Inventory Funding Trust
Total current assets
Equipment, less accumulated depreciation
Intangible assets, less accumulated amortization
Liabilities and Shareholders' Equity
Income taxes payable
TRM Inventory Funding Trust note payable
Total current liabilities
Term loans and other debt
Settlement agreement due after one year
Additional paid-in capital
Total shareholders' equity
Total liabilities and shareholders'
Problems with ATM Vault Cash
ATM Market Place reports that East Coast armored carriers on strike.
East Coast armored carriers on strike; ATMs could run out of cash over holiday weekend
— 02 Jul 2004
[Liquidity risk: banks may lose access to their "vault cash"]
PHILADELPHIA - Armored carriers who service the majority of the ATMs in Pennsylvania, New Jersey and Delaware are on strike, which may affect consumers' ability to get cash from ATMs over the July 4 holiday weekend.
According to an NBC10 report, Loomis Fargo & Co. and the union representing workers ended talks on July 1 without a deal; no talks are scheduled over the holiday weekend.
Workers are on strike over contract issues including driver safety, wages and health care.
Union members say it is unsafe for workers to travel only in pairs. They are requesting three-person crews when handling cash from ATMs.
Unable to reach an agreement with company officials, the union warns ATMs may run out of cash over the busy weekend. Clients include U.S. Bank, Bank of America, Fleet and Wachovia [more evidence that all major banks are involved in ATM funding], as well as area casinos.
Loomis Fargo officials say there will not be a cash shortage. "We are confident our operation will be 100 percent by this weekend," a company spokesperson told NBC10.
ATM Market Place reports that ATM vault cash provider files suit against armored carrier.
ATM vault cash provider files suit against armored carrier
— 03 Jan 2003
[Credit/default risk: Those who borrow "vault cash" from banks may not return it.]
AMARILLO, Texas -- Herring National Bank, based in Amarillo, filed suit on Dec. 31 against Dallas-based armored car company Mobile Express Corp., claiming the firm failed to return more than $2 million in cash recovered from ATMs, according to a report in the Amarillo Globe-News.
According to the suit, Herring, a vault cash provider for ATMs owned by third parties, contracted with Mobile Express to provide armored car services and stock the machines with cash. Under the contract, residual cash remaining in the ATMs was supposed to be returned to Herring.
The suit claims Herring recently became aware that the armored car company was not returning cash from ATMs on a consistent and timely basis. On Nov. 17, Herring prepared a reconciliation of amounts Mobile Express owed to Herring because of the bank's concerns about missing ATM cash.
According to the Globe-News report, the reconciliation determined Mobile Express failed to return large sums of Herring's cash that was removed from ATMs. After Herring made repeated attempts to collect the money from Mobile Express ["attempts to collect" is what banks do on loans that have defaulted. The fact that a bank has to "attempts to collect" its "vault cash" is a joke.], the bank on Dec. 30 made a formal request for Mobile Express to return about $1.8 million in cash.
"Despite MEC's acknowledgment that residual cash is unaccounted for, MEC failed and refused, and has continued to fail and refuse, to return the cash due and owing Herring," the suit states.
The suit claims Herring provided Mobile Express with more than $2 million in cash that was not returned. The bank is seeking damages, court costs and attorney fees in its suit.
According to its report, the Globe-News attempted to contact officials from Mobile Express for comment, but the company's telephone had been disconnected.
The Economic Times reports that ATMs empty as bank stir sparks higher withdrawals.
ATMs empty as bank stir sparks higher withdrawals
7 Aug 2009, 0710 hrs IST, TNN
[Systematic risk: Since all banks now share ATM vault cash, all banks will run out of cash together in the face of higher withdrawal rates.]
NEW DELHI: A number of ATMs ran out of cash in the city. While ATMs of PSU banks that are on a two-day strike went dry early in the day, some ATMs of private banks too ran out of money towards Thursday evening as PSU bank customers made a beeline for them.
''It's a new [completely predictable] situation for us,'' said a private banker. ''Now that a ll ATMs are linked and a customer from any bank can withdraw money from the ATM of any other bank, there was huge pressure on the ATMs of banks such as ICICI Bank and HDFC Bank.''
The banker said the problem would be temporary. ''All ATMs are monitored electronically . As soon as they run out of money, the bank sends out personnel to replenish them,'' he said. Private banks noticed higher withdrawals on Thursday and were replenishing the ATMs more frequently.
On Day 1 of the two-day strike, around 10 lakh employees of government owned banks, which control almost 70% of banking operations in India, struck work. These banks had filled their ATMs with cash on Wednesday night. But by afternoon, they went dry.
The situation is likely to worsen on Friday. Although private and foreign banks are not participating, banking functions like cheque clearances and current account operations have been hit as PSU banks control 70% of these operations.
My reaction: Banks are lending billions of dollars to ATM owners/managers and pretending they still own it for reporting purposes.
[I will expand this later today.]
Banks making a mockery of the English language:
Giving someone money and then charging them for the use of the money is called making a loan. However, because banks want to treat the cash loaned to 3rd party ATMs as their own "vault cash", they refuse to acknowledge these loans, conjured up all types of terms to hide what their vault cash really is:
Vault cash in 3rd party ATMs = cash loaned to 3rd party ATM owners/managers
ATM vault cash provider = Banks who lend money to 3rd party ATM owners/managers
ATM Funding = ATM Lending
Cash usage fee = interest fee
Monthly funding fee = monthly interest fee
Loaning VS Custodianship
When possession of an asset is unilaterally (ie: no payment, not a sale) transferred from the owner to a 3rd party, the transaction establishes either a lender/borrower or custodian relationship.
1) 3rd party has the right to dispose of asset (sell it, spend it, dispense it, etc...)
2) 3rd party is charged an interest fee for use of asset
3) Examples: Credit card cash advances, securities lending, cash loaned to ATM owners/managers, etc...
1) 3rd party doesn't not have right to dispose of asset.
2) 3rd party charges owner a storage fee
3) Example: Precious metals held at Goldmoney or Bullionvault, stock certificates held at custodian bank, etc...
Then banks could only legitimately call cash held at 3rd party ATM as "vault cash" if:
A) 3rd party ATMs owners/managers were not allowed to dispose of cash (no withdrawals from ATMs) and
B) 3rd party ATMs owners/managers were charging banks storage fees for holding cash
However, since banks are charge interest on and allowing withdrawals of cash provided to 3rd party ATMs, they are indisputably making loans. Money in these ATMs has no business being treated as "vault cash". Regulators allowing this accounting fraud to occur are either corrupt or incompetent.
Conclusion: Vault cash is supposed to be 100% safe (ie: cash in a banks vault). Assets listed as vault cash for reporting purposes should:
A) have no liquidity risks (ie: no possible loss of access to cash)
B) have no credit risks (ie: no possibility of default).
C) be fully owned and controlled by bank (ie: no 3rd party should have right to dispose of a bank's vault cash).
D) not be earning any income (there is no way "vault cash" can be a legitimate "earning asset" for banks)
"Vault cash" provided to 3rd party ATMs fails all these tests. What banks are doing with ATM Funding is fraud.