This is the second part of three+one’s Summer Blog Series . As there are five Tuesdays in August, I will be addressing the top five questions the nation’s public and Higher Ed financial officers ask me as I travel across the country. Today’s question: “Why are banks no longer interested in my deposits?”


A couple of months ago I received a call from a town treasurer asking if I knew of a bank that would take their $10 million in deposits. I called two national banks, two regional banks, and three community banks. Not one of these banks wanted the deposit.

Why wouldn’t a bank want public deposits?

Why Don't Banks Want My Deposits?

Starting last January, all public “non-operating” deposits went from welcome assets to huge, unwanted liabilities, thanks to the new Liquidity Coverage Ratio (LCR) established by the Dodd-Frank Wall Street Reform Act of 2010.

For banks with assets of over $50 billion, the LCR requires a double-digit capital “set aside” on all non-operating deposits; it will reach even higher levels by the end of 2018. Couple that with required government collateral obligations and it’s easy to see why public fund deposits are now hurting banking relationships. One banker told me that non-operating funds are a 30%+ loss leader to their bank’s bottom line. For community banks, a general rule of thumb is to limit public deposits to just 10% of their total balance sheet exposure.

So here’s what you need to know:

Why Don't Banks Want My Deposits?

Operating funds—those used for day-to-day cash flow needs (e.g., payroll, benefits, vendor payments, debt payments, etc.)—are considered “sticky” dollars by Fed standards and are not levied an LCR rate. These deposits are appealing to banks of all sizes when coupled with bank transaction services (e.g., electronic payments, purchasing cards, virtual payments, etc.) as they generate fee income.

For non-operating funds—those that are considered on the sidelines and held for reserve—banks now must apply an LCR to them. In many cases, banks are no longer interested in holding such funds but, if they do, they’re going to pay a low deposit rate on savings or money-market accounts.

Your best alternative solution is a Bank Deposit Investment Account (BDIA). It’s a bank custodial account managed either by your bank’s trust department or by a Registered Investment Advisor (RIA) who specializes in such accounts.

My advice: have a conversation with your banker(s) today. Despite the changed landscape of banking due to tougher federal regulations, they’ll want to work out a solution that works for all concerned.

Stay tuned for next week when we continue our three+one Summer Series where we answer the question: “Are there opportunities to earn income on my operating cash while still staying safe and liquid?”