ABA Banking Journal - January 2013 - (Page 19)

Pass the aspirin The Banker-to-Banker exchange The Headache: Dealing with the end of TAG By the time you read this, TAG—Transaction Account Guarantee program—will have expired at yearend. We asked bankers what impact they expected to see, and if they would switch to paying interest on business checking. (The remedies here also appear online at www.ababj.com/blog/5627.html, with additional comments from the bankers.) Remedy 1: Stick to basics Mike Murphy, executive vice-president/CFO and cashier, First American Bank, $323 millionassets, Norman, Okla. TAG’s expiration will impact funding at our bank to a small degree. It shouldn’t impact our strategy of attracting and gaining relationships via loans and other services. We offer a variety of checking products for personal and business account holders, including interest-bearing business accounts. I don’t believe customers will focus much on interest-bearing business accounts until interest rates go up to more normal levels. Remedy 2: Earnings credit, for now Sue Eno, president and CEO, Citizens National Bank, $262.1 million-assets, Cheboygan, Mich. We’ll remind customers that standard deposit-insurance coverage increased permanently from $100,000 to $250,000; there are ways to boost FDIC coverage without moving money; our institution remains strong; and their money is safe. Paying interest on business accounts? We are not planning to move to interest bearing. We pay an earnings credit applied against the account holder’s service charge. If we decide to pay interest, we would give serious thought to stopping the earnings credit. Remedy 3: Introduce interest Brian Constable, executive vice-president and chief commercial banking officer, Sunwest Bank, $620.2 million-assets, Irvine, Calif. There is no expected impact on our bank, regarding TAG’s expiration. A few months ago, we launched several different types of business checking accounts that offer interest. We did this to prepare for TAG’s potential expiration. Interestingly enough, the demand for the checking-withinterest product has been limited. That is not because of the unlimited FDIC insurance, but something more basic: Who is going to move from one bank to another for 10 basis points? Remember: People still bank with people. And what do they want? Value; customized products and services; knowledgeable as well as experienced bankers; and educational offerings. Remedy 4: Offer insured sweeps Bob Chapman, president and CEO, United Bancorp, Inc., $897.5 million-assets, Tecumseh, Mich. First, we will be in contact with all our large depositors to inform them of TAG’s expiration and answer any questions. Second, we will train all our front-line staff to answer questions on TAG if customers or noncustomers ask. Finally, we have added the Promontory Interfinancial Network’s ICS (Insured Cash Sweep) product for customers who are sensitive to FDIC coverage. [ICS service is endorsed by ABA’s Corporation for American Banking.] We don’t anticipate adding interest payments in the immediate future. . . . But in the future, as rates move up and loan demand picks up, I believe that paying interest on business checking accounts will come into play. Remedy 5: May help our ratios Blair Hillyer, president and CEO, First National Bank of Dennison, Ohio, $204.8 million-assets Since we’ve picked up a ton of deposits from the eastern Ohio Utica Shale boom, we felt like TAG’s expiration would help. We expected some deposits to leave, and we wanted that. Some gas customers were building up big balances since they knew they were completely insured. We felt strains on some ratios due to the dramatic growth. I never thought I’d see the day when our efforts to gain DDA deposits would cease. Remedy 6: Plan a defensive backup Peter Clements, president and CEO, The Bank of Southside Virginia, $545.9 millionassets, Carson,Va. Our view: TAG was a “necessary evil” when enacted, but did serve a useful purpose during the financial crisis. We do not expect significant runoff, but are prepared in case of deposit contraction. We will respond to market conditions and have a defensive product in place, but we do not plan to pursue this as a growth strategy. Remedy 7: Move those who want it Joshua Guttau, president and CFO, Treynor (Iowa) State Bank, $249.4 million-assets Interest rates are so low now that I don’t think that is the client’s focus. There may be a small number of deposits that move from non-interest to interest accounts, since both now will be at the same insurance level. January 2013  |  ABA BANKING JOURNAL  |  19 http://www.ababj.com/blog/5627.html

Table of Contents for the Digital Edition of ABA Banking Journal - January 2013

ABA Banking Journal - January 2013
Contents
Chairman’s View
Editor’s Column
The Economy
Bank Notes
Picture This
ABA COMMUNITY BANKING Time to prune that branch?
Pass the Aspirin
Tech Topics
COVER STORY: The road ahead How banking may fare in Washington
Insurance: How well are you covered?
Compliance Special Report
Compliance Inbox
ABA At Your Service
Convention Preview
First Person

ABA Banking Journal - January 2013

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