By State Treasurer John Kennedy

We’ve all seen the commercial with the slogan that says when banks compete, you win. This same basic concept applies to the State Treasury’s Internet auction system for certificates of deposit (CDs). When banks compete for CDs, Louisiana taxpayers win.

For the past four years, the Treasury has been using www.BidLouisiana.comto competitively auction CDs online to financial institutions. The main reason we do this is to earn more money on citizens tax dollars, and we have generated $454,000 in additional earnings for the state since we started.

Here’s how BidLouisianaworks. Banks log on for a 30-minute auction where they try to out-bid each other for state deposits. Each banks bid consists of the amount of money it wants and the interest rate it is willing to pay, and banks can submit multiple bids right up to the end of each auction.

Once the online auction is complete, the Treasury awards cash to the financial institution with the highest bid in exchange for CDs. The higher the interest rate, the more money the state makes on its investment.

BidLouisianais also beneficial to Louisiana banks because the Internet makes CDs available to smaller banks and those located in rural areas that may not otherwise have access to state deposits. Banks also like participating in the auctions because they get deposits that they can lend out to individuals or use in other ways, ultimately for the benefit of the community where they are located.

This past July, we held our most successful CD auction to date with a record 28 Louisiana banks submitting 273 bids worth $172 million. Out of the total number of financial institutions participating in the auction, 17 had the best bids and were awarded $60 million. We set new records for a high interest rate of 3.855 percent and a low interest rate of 3.44 percent. The average interest rate was 3.73 percent, resulting in additional earnings of more than $88,000 for the state.

One of the reasons our July auction was such a success is because a flat yield curve makes short-term investments like CDs more attractive to banks than long-term investments. Another reason is there has been a higher demand for consumer loans statewide, which increases financial institutions need for funding sources.

By law, the Treasury can competitively bid up to 50 percent of state funds available for CD investment. We have one more BidLouisianaauction left in 2005, and it will be held on October 18. For more information, contact our Investments Division at (225) 342-7004 or visit www.BidLouisiana.com.