Let Your Deposits Become an Asset, Not a Liability

In case you missed our January 1st blog, public non-operating deposits became an even greater liability to your bank due to a new Liquidity Coverage Ratio (LCR) established by the Dodd-Frank Wall Street Reform Act of 2010.

Let Your Deposits Become an Asset, Not a Liability

For banks with assets of over $50 billion the LCR rate on these deposits will reach double-digit levels by the end of 2018. Coupling the LCR rate with newly required government collateral obligations, these pubic funds can now become a distraction in one’s banking relationship. What’s more, their influence is growing quickly and their impact will change the way a public entity and higher ed institution will exchange currency.

Operating funds are those funds that are used for day-to-day cash flow needs, (e.g., payroll, benefits, vendor payments, debt payments, etc.). These funds are considered “sticky” dollars by Fed standards and are not levied a LCR rate. These types of dollars are appealing to banks of any size when coupled with bank transaction type of services (e.g., electronic payments, purchasing cards, and virtual payments) which generate fee income.

© copyright 2012 three+one

Non-operating funds are those that are considered on the sidelines and held for reserve; banks now must apply the LCR to them. In many cases, banks are not interested in holding such funds and, if so, they are not paying a high level of deposit rates on savings or money-market accounts.

So what should you do to reposition your non-operating funds to become a revenue-generating asset rather than a liability? Here are three easy steps to follow:

1. Create a daily, weekly, and annual cash flow chart and break apart operating from non-operating funds.

2. Talk to your bank(s) and make sure operating vs. non-operating accounts are being distinguished.

3. Determine when you will actually need your reserve funds and stagger them over a period of time so your bank or RIA can create a strategy to manage these funds differently. Instead of a traditional savings or money-market account, look to your bank and a Register Investment Advisor (RIA) partnership to establish a Bank Deposit Investment Account (BDIA).

A BDIA still allows you to use a bank to provide the safety of your underlying dollars, while allowing your RIA to create an investment portfolio that can take advantage of any rate increase. The difference between a bank deposit account and a BDIA can be anywhere between 70 and 100 basis points.

The end result: your non-operating funds become an asset to your banking relationship and generate revenue, even in a low-interest-rate environment.


Have any questions or comments for the author? Reach out below

 Joe Rulison



© copyright 2016 three+one