ABA Banking Journal - September 2010 - (Page 38)
Coping with the Dodd-Frank Act
Will Dodd-Frank shred
he final text of the DoddFrank Wall Street Reform and Consumer Protection Act spanned over 2,300 pages. Many parts of it By Jon will have intended consequences that impact financial institutions and their customers for years to come. And there will unintended consequences. Buried 700 pages into the Act is one of the briefest parts—Section 627, Interest-Bearing Transaction Accounts Authorized, which, one year after enactment (July 21, 2011), repeals the prohibition on payment of interest on commercial demand deposit accounts—in place since the Great Depression. Opinions on the effect of the repeal range from mundane (ways of crediting revenue to business DDA customers have existed for over 20 years, says this school,
38 | ABA BANKING JOURNAL | september 2010
Ending the ban on paying interest on demand deposits, coupled with FDIC premium changes, alters the rules. Here are some possible strategic responses
so what’s the big deal) to major (the profitability of every commercial DDA relationship will be impacted, say these bankers). Regardless of your camp, Gabriel ignoring basic marketing strategies and solid analysis will lead to unintended consequences for your bank. Some will be potentially significant, because the non-interest bearing commercial DDA has been one of, if not the most profitable core deposit relationship and fee generator for financial institutions. Going by the numbers A review of “classic” commercial DDA profitability analysis (from the financial institution’s perspective) pre-Dodd-Frank and what factors will impact this analysis going forward may help banks identify the issues they
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