by Joe Rulison | Sep 27, 2016 | Cash Management Practices
Do you remember that famous commercial back in the 1970s with three brothers and a big box of Life cereal? Neither of the two older brothers wanted to be the first to try it, so they pushed the bowl to their youngest brother, Mikey. Mikey tried it and liked it and the two other brothers shouted out in unison that “Mikey likes it!” They then were happy to gobble up their own bowls of Life cereal.
I feel the same scenario can apply to the Bank Deposit Investment Account (BDIA).
The BDIA is new and everyone seems hesitant to try it. The “Mikeys” out there who have done so were happy to find it’s safe, liquid, and provides a higher yield while still meeting all federal, state, and local legal requirements.
A BDIA is a bank custody account that primarily holds treasury and government securities with a complement of high-quality corporate paper where permitted.
The BDIA has two critical components that cannot be overlooked. First, a liquidity analysis that analyzes one’s cash flow and determines the time value of all cash that is overlapped with a worth assessment of funds in the national marketplace.
Second, the services of a Registered Investment Advisor (RIA) who also serves as a fiduciary in managing such cash.
Combine the liquidity analysis with the power of a strong RIA and you have a service that will take low-performing and non-performing cash and turn it into an income-generating asset.
Wayne County in Upstate New York did the “Mikey” thing. They were one of the first to try a BDIA and guess what? They love it! While their cash is safe and liquid in the bank, the county government has generated hundreds of thousands of new dollars of income to their bottom line. For added confidence, their U.S. Treasury portfolio is being managed by Manning & Napier, a world-class RIA.
At three+one we create the liquidity data that sets the stage for low-performing and non-performing cash to become an asset that produces income immediately. We are not a bank, an RIA, or a Financial Advisor (FA) but rather an independent provider of liquidity data that matches the time value of all operating and non-operating cash to its value in the marketplace.
Public and Higher Ed officials frequently ask me if anyone else has tried a BDIA. To that I say, “Yes, and they love it.”
Maybe it’s time you tried the BDIA approach. It’s our bet you’ll love it. Hey, Mikey did!
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We Hope to See You at our Upcoming Presentation:
GFOA of SC – October 16 – 19
North Country NY GFOA – October 20th
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by Joe Rulison | Sep 20, 2016 | Banking Trends, News
Please let me off—I’m getting dizzy!
That is how I feel about the Federal Reserve’s approach to managing Fed fund rates. And I don’t think I’m alone.
The ride we have all been on has been fast, slow, and every which way. One moment the Fed is set to raise rates and then it comes to a sudden reversal given domestic and international data or events.
Last year I advocated that the Federal Reserve should go back to a “one-voice” policy as it was under Alan Greenspan. The only voice I want to hear is that of Fed Chair Janet Yellen—and that it be clear and decisive.
The merry-go-round strategy they currently use is not a fun ride. I feel each member of the Federal Reserve board represents a horse of a different color, each voicing a different opinion. Around and around we go and where and when it will stop nobody knows.
This approach by the Fed may be very intentional, but at some point it has to stop. We need a direction that can allow all of us to strategize and plan for the future.
I’m ready for a new ride but, in the meantime, my advice is to focus on one item that can provide stability, comfort, and show results, rather than going around in circles.
At three+one we are using this time of uncertainty at the Fed to turn low-performing and non-performing cash into revenue-generating assets for our clients. Even in this low interest rate environment, we can help you put a time value on your cash and help it become a revenue-generating asset.
So while the Fed may be going around in circles, you can go in new direction by driving a new source of revenue off your cash.
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We Hope to See You at our Upcoming Presentation:
GFOA of SC – October 16 – 19
North Country NY GFOA – October 20th
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by Joe Rulison | Sep 13, 2016 | Fintech
Venmo, Loop Pay, Apple Pay—been there, done that, right? But most people haven’t yet. I used Apple Pay the other night at Kohl’s. Certainly I could not be the first person to do that, yet the cashier was surprised. She claimed to never have seen it used before. And that is what surprised me.
We attend and make presentations at various conferences around the country. One question asked during many of these meetings is “When will mass adoption of FinTech payment technology take place?” When you hear people say, “I have never seen that used before”, it makes it tough to claim this new technology has become mainstream.
That leads us to look at the stages of adoption. The first stage is made up of innovators; they are always out in front and love the cutting edge, even if that cutting edge doesn’t always work as intended.
Then you have the early adopter stage. That is where we are with many of the exciting payment applications that exist today. Many in the younger generation have moved in and are happy to use the latest technology.
The next group of people will be in the early majority. It takes time to get to this stage because it’s hard for people to change the way they’ve always done things. Research shows people trust a brick and mortar bank. People trust checks, even though the highest fraud still occurs with checks. These same people fear electronic payment solutions are more vulnerable to hackers.
Nevertheless, those who track FinTech usage say the move from early adopters to the early majority has already begun. More and more people are asking themselves “Why didn’t I try this sooner?” If you have tried Apple Pay, Loop Pay, Venmo, or any of the other options out there, you will never want to go back to chip and whatever—it just takes way to long and my signature looks terrible on the small screen!
What does all this mean for your organization?
Once again we ask if you are prepared to take electronic payments from people in the format they’d prefer to use? Will you require them to make a payment in an inefficient and more expensive way because your organization falls further and further behind the times? What efficiencies will you gain by becoming fully and exclusively capable to make and receive payments electronically?
Bottom line, as the transition from early adopters to early majority begins, you need to prepare your organization to be in the new mainstream.
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We Hope to See You at our Upcoming Presentation:
GFOA of SC – October 16 – 19
North Country NY GFOA – October 20th
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by Joe Rulison | Sep 6, 2016 | Banking Trends
The regulations imposed on the banking industry in the years following the 2008 financial crisis are extremely convoluted in the eyes of some experienced financiers, let alone the average consumer.
July 21, 2016 marked six years since the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is universally viewed as the main source of stricter regulatory measures on banking activities. However, it is not the only action taken to regulate bank operations since the 2008 recession.
The Basel Committee on Banking Supervision (BCBS) is a global organization consisting of several countries, which issues a set of recommendations called the Basel Accords. Basel III is an act issued by the BCBS in 2010, and which was adopted by the United States a year later. The U.S. implementation applied the act’s mandates to banks and institutions with more than $50 billion in assets under their management.
Basel III was the catalyst that lead to the regulations provided by the Dodd-Frank Act. However, the differences between the regulatory measures are often considered vague when interpreting which rules belong to which. Basel III has several different executive regulations that can be summarized as follows:
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Banks were required to maintain a Common Equity Tier 1 ratio (solvency ratio) of 4.5% in 2010, which is defined as the ratio of capital requirement to risk-weighted assets. This is an increase from the previously established 2% solvency ratio, which had been the norm since 2004. This minimum ratio will also progressively increase until 2019 when the established solvency ratio will be 7%.
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A Liquidity Coverage Ratio (LCR) was established, which states that banks must always have enough liquid assets available to cover their total net cash outflow for the following 30 days of their banking operations.
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Additionally, a Net Stable Funding Ratio (NSFR) was established, which entails that the amount of Available Stable Funding (ASF) divided by the Required Stable Funding (RSF) must exceed 100% for every year. The amount of ASF is defined as the total capital and liabilities that are expected to be reliable. The RSF is made up of consistent funds calculated as a function of a bank’s or company’s liquidity characteristics and residual maturity characteristics.
The primary purpose of Basel III was to increase the amount of high-quality assets that banks and bank holding companies have available so that if the 2008 recession were to repeat itself banks would be more prepared to handle the situation without U.S. government assistance. Overall, it seems to follow the trend that we also see with big-bank regulatory acts that limit the ability of banks to make expenditures that subject them to possible collapse.
