The Circle of Life

The Circle of Life

Yes, the bank merger trend is back, but on a much different level. As mentioned over the last two years, the trend would rekindle itself after more than a decade-long lag following the financial crisis of 2008.

Once again, the circle of life in the banking industry evolves.

Instead of the mega banks gobbling each other up to capture the top five slots, as witnessed in the late ’90s and early 2000s, the new trend that’s underway is with regional and community banks. By merging they combine & strengthen technology, become more efficient, and achieve a more level playing field with much larger banks (e.g., J.P. Morgan, Bank of America, Wells Fargo, Citibank, etc.).

The Circle of Life

The $66 billion merger of BB&T and SunTrust has led to speculations that other regional banks may follow suit. These include, but are not limited to PNC, Fifth Third, Key Bank, TD Bank, M&T Bank, Huntington, Capital One, Citizens Bank, Key Bank, Regions, and Synovus.

What does this mean for the public entity and higher Ed marketplace?

The same as it did over a decade ago: account conversions, personnel turnover, pricing changes, branch consolidation, stronger competition to preserve business, and a trickling down to community banks wanting to join in on the trend.What can one do to prepare for another round of bank mergers?

First, have a conversation with your banker(s). Discuss the change that is occurring or may occur with their financial institutions and in the marketplace, including possible implications if a merger were to happen.

Second, if a merger or takeover were to occur, have patience. Issues with regulators, shareholders, and Day 1 processes often take a year or more to be resolved. While each bank will still need to operate independently until Day 1, the work behinds the scenes is both extensive and exhaustive.

Third, in many cases merging banks may have to shift deposits due to regulatory caps, which may mean that you will be asked to consider Treasuries instead of bank CDs or deposit accounts. For example, with the BB&T/SunTrust merger, they may be required to shift as much as $4 billion in bank deposits from on-balance sheet to off-balance sheet investments.

Fourth, if the changes require a new banking RFP (Request For Proposal), discuss it with your banker(s). Given the new technology of threeplusone’s rfpPrep® (, the ease of conduct a banking RFP could never be easier. The whole process is 100% online and can be done in 85% less time than typical RFPs.

In my 35 years in the financial, higher Ed, and governmental banking world, I’ve often seen history repeat itself. With new technologies, better online services, greater efficiencies and transparency, the evolution of banking will only get better, one bank merger at a time.

Public Impact

Public Impact

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.

Public Impact

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.

Who Wants Public Deposits?

Who Wants Public Deposits?

Who Wants Public Deposits?

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.

Who Wants Public Deposits?

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.

The Fed Wants You…

The Fed Wants You…

The U.S. wants you to buy U.S. Treasuries, much like we all bought Saving Bonds back in the 1940s.

The Fed Wants You…

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?

The Fed Wants You…

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