ABA Banking Journal - September 2010 - (Page 42)
Coping with the Dodd-Frank Act
credits. The cost of FDIC insurance will now apply to the entire balance in a non-interest bearing DDA, and there will no longer be an option to not have full coverage. However, the overall attractiveness of acquiring and servicing these accounts remains a strong and definite one—especially larger accounts from an “all-in” cost perspective. Smaller institutions can compete effectively against larger ones for high-value relationships with the risk component eliminated for the depositor. Consider additional services and features to offer as a way for the higher-balance depositor to utilize the earnings credit. 4. Take a hard fresh look at “sweeps.” Collateral-based sweep accounts merit a thorough exami-
nation. Servicing and compliance considerations are not trivial. Further, the cost of FDIC insurance that will now be applied against those assets can be directly absorbed in basically only two ways, either out of the institution’s spread or out of the depositor’s interest earnings. Will this be a product whose time has now passed? Finally, every institution should evaluate the use of their collateral— from an interest-rate-risk perspective and from the viewpoint of alternative investment strategies. 5. Take the opportunity for product-line change, if it fits. The introduction of a new product has to be viewed in the context of its impact on the existing product “suite” and the ability of your bank-
ers to properly position it. There may well be a potential opportunity to consolidate some products and use the interest-bearing option as a way to craft more of an “all-in-one” solution for high-value customers. Resist “product proliferation.” The Banking Act of 1933 prohibited interest on commercial DDA. Legislators created a disincentive for community banks to move funds upstream, away from the community. It was also viewed as a potential way to produce “cost savings” to cover the newly enacted FDIC coverage. Repeal has created similar challenges over 75 years later. n
Mr. Gabriel is managing director, FinPro, Inc., www.finpronj.com, Liberty Corner, N.J.
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42 | ABA BANKING JOURNAL | september 2010
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