If your entity is not already making use of all its cash—and earning 1.0% or more in interest—let me share ten reasons why it makes sense to act now:
1.) To offer your taxpayers no tax increase—or even lower taxes.
2.) To help offset losses in the deduction of income and property taxes under the new tax reform law.
3.) To provide pay raises for your staff.
4.) To enable adding personnel to your police and/or emergency services departments.
5.) To fund the salary of one or more teachers or professors.
6.) To help offset likely increases in medical insurance premiums.
7.) To purchase previously unaffordable new technology.
8.) To cover unexpected budget expenses.
9.) To establish or add to reserve funds for future needs or projects.
10.) To fund high-efficiency equipment for your facilities that will provide additional savings or increased revenue.
We are at a crossroads as we see continually higher interest rates, possibly reaching 2.0% by year-end. If you do nothing, be prepared to explain yourself when your constituents ask “Why not?”
At three+one, we can help you take a proactive approach in making the most of higher rates through our proprietary liquidity analyses and data models. We are not a bank or a Registered Investment Advisor; our interests are solely those of your entity and your stakeholders.
The reasons are clear. Cash is a valuable asset that can make all the difference in meeting your budget goals—in 2018 and beyond.
Over the last several years, three+one has blogged frequently about the changing landscape of banking and the value of cash as an asset.
Last year at this time, I made a prediction of the top 10 trends for 2017. My batting average was in the same range as 2016, over 70% correct.
As we head into 2018, the top 10 trends I see evolving are as follows:
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.
4. The U.S. GDP will be on pace to reach 4.0%, and the nation’s unemployment rate will break the 3.75% level. Over two million new jobs will be created as a result of the newly approved federal tax reform legislation.
5. Continuing 2017’s trend, public entities will enjoy higher cash levels throughout 2018.
6. Under the leadership of the Federal Reserve’s new chair, Dodd-Frank regulations will be relaxed but not eliminated. The changes made will be beneficial to banks of all sizes.
7. There will be a spike in the number of community bank mergers.
8. Public entities and higher Ed institutions will issue a greater level of banking Request for Proposals (RFPs) due to greater pricing pressures, bank branch closings, and more competitive deposit-rate offerings.
9. Alternative payment options will grow, given new technology, greater restrictions placed on the usage of cash and checks, and more attention being given to digital currency and its regulation.
10. By year’s end, three+one will have helped public entities and higher Ed institutions realize upwards of $20 million in new interest income as a result of best practices in liquidity analysis and the proactive management of their cash.
At three+one we strive to help clients navigate through the changing landscape of banking and an environment of rising interest rates.
Last month President Trump nominated Jerome Powell to become the next Federal Reserve chair, replacing current chair Janet Yellen in January.
So who is Jerome Powell? What can we expect from him that will directly affect public entities, higher Ed, and health care institutions?
Jerome Powell will be the first Fed chair that comes from the world of investment banking. He has extensive experience as a lawyer, and investment/private-equity banker, with considerable government expertise, having worked closely with the U.S. Treasury Department. What differentiates Powell from previous Fed chairs is that he was never an economist.
Most observers consider Powell to have much the same outlook on economic issues as Yellen.
So what can we expect from the new Fed chair, assuming he will be confirmed by the U.S. Senate?
Powell will take a more corporate approach to managing his office. You will also see more direct messaging by him and fewer opinions offered by various Fed board governors in public.
Powell will likely maintain a similar, centralist approach as Yellen’s on monetary policy. I don’t expect a shift in current Fed policy; that should be calming to the markets.
Under his leadership, we can expect the Fed to stay on track to bring up Fed rates to 2.0% by no later than 2019.
As a former Goldman Sachs investment banker, we can expect Powell to ease up on the level of regulations being imposed on banks under the 24,000+ pages of Dodd-Frank. The same with other various Federal regulations, including the Volker Rule.
While I expect him to go easy on some regulations, I don’t think he will unravel the rules that were established after the financial crisis of 2008 to protect the liquidities levels of the banking system.
Powell will set a strong balance between what economic numbers are surfacing with a strategy that will sustain the U.S. economy in case of a future U.S. recession.
I think Powell was an excellent choice and will prove to be a strong Fed chair. You will find him to be more sensitive to issues affecting smaller banks, as well as to the unnecessary and burdensome regulations on big banks that have piled on onerous costs and needless overhead.
The changes under Powell could lead to a methodical approach in raising short-term rates while making bank deposits and lending more appealing to banks and the marketplace, with hopefully less paperwork.
It was just last year that I blogged about the use of Apple Pay, a form of “near-field communication,” as an upcoming alternative to credit cards in making a purchase. As I mentioned, technology is moving at the speed of light—and it is. The latest alternative to hard currency, i.e., cash, is digital currency, a technology-driven currency.
My colleagues, friends, and family members are all talking about digital currency. Not surprisingly, the market is responding. Bitcoin, a form of digital currency, was trading at around $600 per coin last October and it’s now over $6,100! It may seem complex and confusing, but we do need to know about it.
Digital currency can also be explained as digital cash. Blockchain is the underlying technology that facilitates the generation and transfer of such currency. Moreover, the seamless transaction of digital currency allows a point-to-point financial transaction that bypasses any middleman, such as a bank.
It is no wonder that big banks are investing billions of dollars into blockchain, in order to preserve their roots of business while protecting their clients from fraudulent or otherwise illegal transactions.
The way we exchange money is changing and we can expect it will continue to do so. At three+one, we will keep you informed of upcoming trends and how they may impact you. You can bet, sooner or later, we’ll all be impacted.