The Information Age and resulting new technologies have led to a a paradigm shift in the way the world makes decisions. Look no further than professional sports to see how the approach to formulating strategies has changed.
Coaches, who in the past defended their most important decisions using factors like “gut feeling” and “momentum,” are now making calls based on the probability of winning games according to the data. Analytics gives these leaders the opportunity to completely remove emotions from the situation and take an unbiased approach based on the numbers. The underlying statistics have always been there but now, thanks to technology, they have easy and virtually unlimited access to them.
Modernized treasury management within public entities and higher Ed sectors is no different. Cash can be spread out across many accounts at multiple institutions all earning different yields. Combine this with restrictions or limits on withdrawals and required balances, and one’s cash management picture can be a lot more complex.
Treasury officers are eager to get their hands on data and analysis from one central location that enables them to feel both comfortable and confident when making their cash-management decisions. Analytics makes it possible to maximize the potential of public funds without sacrificing safety or liquidity—and save valuable time during the decision-making process.
This type of information and analysis can include time-horizon data, effective rates for all entity funds across different providers, current market rates, and much more. Finance officials who collaborate with threeplusone have this data at their fingertips; that gives them the ability to maximize taxpayer dollars like never before.
Much like coaches in professional sports, finance officials are accountable to a large group of constituents who will not hesitate to voice their opinions if the results are not in line with their expectations.Having the data in hand and an appropriate application of analytics that backs up your decisions can be the difference maker in getting your finance office the hard-earned recognition it deserves!
Thanksgiving wishes from across the miles from our office to yours. May you have a blessed & bountiful Thanksgiving with friends and family!
-Joe, Peter, Scott, Garrett, Alex, Lena, Andrew, Edna, Dana, Manel & Saransh
When it comes to comparing the cost of banking services, the need to dig below the surface is necessary.
Most public entities will conduct banking Request For Proposals (RFP) to compare pricing on bank services and products. In these RFPs, the level proposed for an earnings credit rate (ECR) plays an important role in determining best pricing. But that may not always be the case.
Externally, banker(s) will view each client as a whole relationship. But internally to the bank, each service or type of deposit account is viewed separately. Here’s the most important thing to remember: the cost for individual banking services and the level of rates offered on bank deposits have their own separate profit centers. They must stand alone and be compared separately.
An ECR is used to determine the interest earnings a bank calculates internally for the level of deposits necessary to cover banking fees. This level can vary from .50% to over 1.25%. However, that’s only half of the real calculations in how the bank covers its cost.
It is important to note that bank fees for products have built-in profit margins to cover the cost of services and overhead. For large national banks, the pass-through costs for their organic overhead are greater than those of local community banks. Bear in mind that local community banks need to cover the costs for outside, third-party support and services; these might be higher due to a smaller number of clients vs. national banks.
As a former Market President of a major bank, here are some tips you should consider when determining the best bank pricing:
1.) Internally, banks price treasury services separately from deposit rates. So should you! Keep in mind that banks internally price their treasury services independently of treasury management of deposits. Since they are priced separately inside the bank, you should also view them separately when comparing pricing. Even though the industry makes you think they are intertwined, you’ll get the best pricing on your banking services and the highest yield on your cash if you consider them independently.
2.) Request a proposed ECR rate, and one that will readjust as the Federal Reserve increases the Fed fund rate. Ideally, the sharing arrangement between you and the bank should be a 50/50 split. As rates increase, so should the narrowing of the spread.
3.) Be sure to have the bank disclose any FDIC charges related to deposits being held by the bank. You may have a higher ECR but if FDIC charges creep in, the less competitive your ECR may be. There needs to be a balance on both sides of the relationship.
4.) A wholesome relationship and strong communications between you and your banker(s) are imperative. There is a direct link between better pricing and strong ties with your bank.
At three+one, we believe in strong relationships with your financial institutions. As interest rates change, so does the value of your deposits and how they relate to the overall value of your banking services and fees. As an independent liquidity analysis and data firm, we provide a pure, unbiased perspective around both sides of any banking relationship.
There is a real cost to doing business. To make a true comparison—and be fair to all involved, including those your entity serves—it is important to know what your real costs are.
We’re here to help you sort it all out.
Each time the Federal Reserve raises interest rates by a quarter of a percent, the higher the value of your cash.
Earlier in the year, I made 10 bold predictions for 2018. My top three predictions were related to increased interest rates. They were:
1.) The Federal Reserve will approve three rate hikes of .25% each to reach a level of 2.00% on Fed fund rates.
2.) The 30-day T-bill rate will break the 2.00% level.
3.) The average bank Earnings Credit Rate (ECR) will break the 1.00% level.
All three predictions have occurred, which means the value of your cash has gone up by .75% or more over the last 10 months. This equates to an additional $7,500 on every $1 million invested or being used to cover banking fees on an annual basis.
It’s anyone’s guess what the Federal Reserve will decide at their next meeting in December. Chairman Powell has indicated that it is his intention to continue on a path of slowly raising short-term interest rates despite mounting political pressure to do otherwise.
At threeplusone we believe very dollar of cash has value in the marketplace. Identifying “all” cash through our proprietary liquidity modeling is what makes our services unique to public entities and higher Ed institutions.
A quarter of a percent rate increase means $2,500 more in earnings per million dollars. That may not sound like much but, as the numbers add up, it could increase your bottom line by tens to hundreds of thousands of dollars per year.
And that can mean a lot to your entity and to those you serve.