A Fed Merry-Go-Round

Please let me off—I’m getting dizzy!

A Fed Merry-Go-Round

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.

A Fed Merry-Go-Round

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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Early Adopter to Early Majority

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.

 Fintech Early Adopter to Early Majority

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.

 Fintech Early Adopter to Early Majority

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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What is Basel III?

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.

What is Basel III?

 

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:

  1. 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%.

  2. 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.

  3. 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.