The U.S. wants you to buy U.S. Treasuries, much like we all bought Saving Bonds back in the 1940s.
One theory that is surfacing is that the Fed wants to put Treasuries in the hands of American public entities, Higher Ed institutions, and private corporations rather than with foreign governments.
How is the Fed making this happen? The answer is more Federal regulations! (No surprise there!)
Between the exercise of having banks limit their deposits and the addition of allowing prime money market funds to float their price at Net Asset Value (NAV) rather than holding at $1, there is now a shift to U.S. Treasuries.
One common thread for all public entities is that U.S. Treasuries meet all legal requirements. While states may vary on permissible investments, Treasuries are a constant across all 50 states.
While Treasuries might be safe and liquid, they do hold a level of risk if you should need to sell them before maturity.
So what should one do in managing short-term cash in a portfolio of Treasuries?
Answer: Employ a liquidity strategy that will match the time horizon of funds against day-to-day cash needs. This is a disciplined approach that takes time but the end result will lead to a much higher yield and more income on low- or non- performing cash.
I expect U.S. Treasuries to become the dominant source of deposit investments over the next two to five years.
Now is the time to be proactive with how you handle your cash flow. Step 1 is designing a liquidity strategy. three+one is the only company in the country that designs such programs for public entities and Higher Ed institutions.
Our data and analyses will help boost the income on your operating and non-operating cash while meeting all legal, safety, and liquidity requirements.
We look forward to helping you make the most of your available cash.
We Hope to See You at Our Upcoming Presentation:
Northeast GFOA Holiday Seminar – December 13th in Troy, NY
I thought we had reached the point at which most of the new banking regulations had been established and the pace of new pages being added to Dodd-Frank might be settling down, but then another set of major headlines hit Main Street concerning consumer banking practices at the big banks.
Last year, I predicted that the pendulum of banking regulations would reach a point of equilibrium after Dodd-Frank reached the 20,000-page mark of new regulations. I figured by that point the authors of the new regulations would be satisfied with their imprint, while consumers and banking institutions would apply pressure against the added costs of doing business in a highly governed environment.
Well, we were just about there—and then the latest shoe dropped.
What can we expect now?
First, more banking regulations, expanded Dodd-Frank reforms, and more restrictions from the Consumer Financial Protection Bureau, created under Dodd-Frank to protect consumers.
Second, the issue of cross-selling internal bank products within a single institution will undergo a major overhaul. The way bankers are credited for sales, management of customer relationships, and compensation will stir up the way they service clients going forward.
Third, expect fewer, if any, introductions by your bankers to internal product partners. This may prove to be confusing or may require multiple banking relationships within a single banking institution.
Finally, expect greater verification of new account openings and/or more paperwork when establishing new services with your bank.
Whatever the case may be, the world of government regulations will surely cause the pendulum to swing to greater extremes.
At three+one, we are independent of all banking and financial institutions. Therefore, if you need to have an assessment or implementation of new banking services, call us. We can help make it an easy and painless process for both you and your banking partner.
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:
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%.
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.
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.