One of the underlining reasons for the merging of large regional banks is to provide a scale of efficiency: less duplication of risk and compliance overhead, coupled with the ability to build greater, stronger & secure sources of technology for its organization and client base.
As I mentioned a couple blogs ago, this trend of regional banks merging is only just beginning. Where will this leave the smaller Community Banks? The answer is at a real disadvantage, especially when it comes to larger institutional clients like public entities and higher Ed & healthcare organizations.
Electronic banking, fraud protection security, and near field technology conveniences – just to name a few – are already being offered by the large banks. They have either built these systems internally or partnered up with fintech companies, requiring large sums of capital investment.
Community banks work with third-party vendors in providing some level of technology support. This comes at a hefty price and can be tough to calculate when pricing product offerings, especially for banking services RFPs.
As a result, the trends I see developing over the next couple of years will be:
1) Community banks will primarily focus on retail consumer banking, being managed out of a local branch. Banking will remain local.
2) Technology will be in the forefront of large banks, including the new entities formed by merging banks.
3) Larger banks will continue to partner with fintech companies to innovate new levels of security and the transfer of funds, like blockchain.
At threeplusone®, we remain a leader in tracking the innovation of bank technology and providers. It is important to be aware of these trends and the sources of such technology, so they can be applied where necessary and incorporated into banking services RFPs.
Technology is moving at the speed of light, and the ability to stay informed is essential in making your life simpler for you and those you serve. Contact us at threeplusone® to ensure you’re capitalizing on the efficiencies and gains financial technology can bring you.
Over the last four years, we have encouraged public entities and higher Ed institutions to hold off on a banking services Request for Proposal (RFP) due to the low-interest-rate environment and the burdensome process in conducting a RFP. The value was not there, given the time required to conduct a banking RFP.
Well, that is now changing. With higher short-term-interest rates, new technology, and more banks pursuing public and higher Ed clients, the time has come to start taking advantage of the marketplace.
Over the last month, we have seen bank Earning Credit Rates (ECR) jump to as high as 1.90% in a competitive setting, with savings rates on cash balances north of 2.00%. All of this follows a trend that we see continuing in 2019.
In considering a bank RFP, it is essential that you have a forward-thinking document that reaches the greatest number of the banks in your marketplace. The idea of pulling one out of a drawer from a few years back, or from a neighboring entity, will not serve you well. An RFP needs to reflect your own banking needs, now and in the future. With technology changing so quickly, the ability to conduct a banking RFP is now at your fingertips.
The process to conduct a banking RFP no longer needs to be a burdensome paper-intensive process. With threeplusone’s new rfpPrep®—an online RFP process (at www.bankingrfp.com)that includes a custom-tailored threeplusone liquidity analysis—you’ll no longer have to read thousands of pages of responses. In fact, comparing banking services and pricing becomes an easy “apples to apples” exercise.
Just imagine being able to know which banks have the best services and pricing within minutes from a final bid deadline; what used to take months to perform now can take a couple of weeks.
Under this approach, your time in conducting an RFP can be cut down by 75%, while focusing on the relationship rather than figuring out comparative pricing and confusing disclaimers through reams of paper.
The time has come to determine if a banking RFP is a priority for 2019. If so, threeplusone can demonstrate the power of rfpPrep and the ease of conducting a bank RFP right at your desk.
Your time is valuable and so are your banking relationships. If it has been over five years since your last bank RFP, now might be time to consider a new one.
The results may surprise you, both in ease and in value.
A personal relationship with your banker is everything. Being a good customer1 has its rewards but also comes with responsibilities.
Last week, I had a meeting with a local banker. She told me how much she enjoys personal interactions with her clients. She shared a story about a customer who had stopped by her office to just say hello and drop off a cup of coffee. A few weeks later that client called for help on an unexpected matter, and she responded immediately. His request required critical information and needed higher management approval. However, based on her knowledge of and relationship with the client, she was able to address all his questions while he was still on the line.
So many times we expect bankers to react to our requests at a moment’s notice. However, given higher demands and the need to service many clients, the ability to respond swiftly is often directly linked to the strength of the bond between client and banker.
So what does this mean?
1.) Given Dodd-Frank regulations—yes, they’re still in place—and the need to “Know Your Client,” strong communications between banks and entities are a must. No matter who initiates the call, please respond as soon as possible. Both sides need to get in the habit of responding quickly; that’s especially important when an unexpected need or emergency occurs.
2.) It’s healthy to meet with—or call—your banker at least once a quarter. This can be a challenge if you have multiple bank relationships. Make your primary bank and/or lending institution your top priority; secondary banks require only an annual meeting and review.
3.) Call, email, or stop by every once in awhile to just say hello. Let me assure you, as a former banker, such a greeting, with no requests attached, goes a long way. Those friendly touches will be remembered if and when you have to make special request later on.
4.) When there are significant changes at your office, notify your bankers. Provide any essential information as well as any forms the bank may need to keep on file. Don’t surprise your bankers well after the fact. This can cause mistrust and lead to delays when time is tight or the need is great.
5.) The right fit and comfort level are important elements to a healthy bank relationship. If you make an effort and you get little response back from your banker, then it might be time to consider a new banker.
Given our business, public service, higher Ed, and government banking experience, we believe in the strength of an engaging banking rapport. The value of a strong customer relationship with your banker(s) is everything, which will lead to better pricing, proactive deposit rate increases, and a quicker ability to respond to simple or complicated requests. And that will enable you do more for those you serve—your customers2.
Definition of customer (noun)-
1. Informal: A person one has to deal with or through.
2. A person who purchases goods or services from another; buyer; patron.
Origin 1400-50 late Middle English
Two years ago, I blogged about the impressive level of cash reserves public entities have on hand for investment. These levels have only continued to grow over the last two years and I do not expect that trend to change into 2019.
The nationwide level of cash reserves held by public entities of all sizes tops $2 trillion, double the size of the U.S. treasury holdings of the Chinese government.
I reiterate this point, given the growing concern over the last two weeks of the possible sale of U.S. treasuries by the Chinese in response to the recent tariffs imposed by our country on China goods.
Currently, a majority of public funds held in American banking institutions are at rates lower than the present rate level paid by U.S. treasuries. In addition, such deposits are not fully available for banks to lend against, making them expensive and the least desirable banking deposits.
Just consider if public entities took the proactive approach of buying U.S. treasuries: our dependence on China would diminish, while our public entities would become more financially stronger by securing higher interest rates on lower-paying deposits—all while staying legal, safe, and liquid.
At three+one we work hard to stay ahead of the trends in the changing landscape of banking and the U.S. economy.
Because cash is an asset—and worth more in today’s market—public entities can take advantage of its greater earning potential while staying within all legal and liquidity guidelines.
Who would have thought that our local communities would have the power to head off a Chinese threat and earn more for the people they serve?
If you would like to learn more about how your entity can optimize the earning power of its available cash, contact us.
The answer is not a firm “yes” or “no,” but rather “it depends.”
First, let me qualify by stating that most banking institutions consider public deposits to be not just a community obligation but also a challenge, due to collateral and legal requirements. Two factors can make such deposits appeal to a bank: longevity and predictability.
As three+one people talk to bank executives around the country, we hear that most of the larger banks are boosting up their balance sheets and are looking to pay up for public deposits. However, they are also looking for general operating accounts or other banking business to justify taking on these deposits. Clearly there are no large banks that are looking for “hot” money.
Right now, smaller community banks are more interested in just boosting their operating money. They don’t want to get caught in an“inverted” yield curve where short-term rates are rising and longer-term rates fail to keep pace. It such cases, public deposits become a losing proposition.
So what options does a public entity have? Consider these tips:
1.) The days of bidding hot money is over. Pick a bank and build a strong relationship with them. The stronger the relationship, the more your bank will respond to keep—and grow—your business. Having multiple bank relationships and accounts stand to work against you, not for you.
2.) Look outside making just bank deposits. Options such as U.S. Treasuries and other public short-term paper may work better, depending on their credit rating.
3.) If available, look into your state’s liquidity pool. Make sure you know all the requirements of the pool’s rates and the ease and ability to access your funds.
4.) Explore any government money market funds with a constant Net Asset Value (NAV). These must be allowed in your state and meet local investment guidelines. Such funds are starting to look extremely appealing in a rising rate environment.
5.) Consider a separately managed account through a Registered Investment Advisor (RIA). Where permitted and with the correct liquidity data, an RIA can manage your short/long-term cash, capture higher yields, and meet all your legal, liquidity, and safety requirements.
Cash is an asset that has a lot of value in today’s markets—and that’s likely to rise. Banks may be specific in what they want and don’t want, but you do have options.
At three+one, we can help you right from the start. Through our proprietary cashVest® liquidity analysis and quarterly data feed, we can pinpoint your exact liquidity needs and provide the assurance that you are making the highest income while maintaining all the necessary requirements.
Your deposits do have value and are wanted; you just need to know where to put them.