BANK ING | IN SURANCE | INVESTMENTS | EMPLOYEE BENEF I T S
Managing Your Government Banking Relationships
2018 NYGFOA ANNUAL CONFERENCEFriday, March 23, 2018
Types of Banking Relationships
Is Your banking relationship Transactional or Relational?
TRANSACTIONAL
Short term focusCommitment to a SalePrimarily price driven
Impersonal
Retail or branch basedLimited interaction
No specialistOne-way marketing
Long term focusCommitment to Client
Mutually BeneficialConsultative
Dedicated Expertise
Trusted AdvisorAccountabilityTransparency
AvailabilityBuilt on Integrity
What Impacts Your GovernmentBanking Relationship and your Bank?
Basel III Liquidity Coverage Ratio (“LCR”)
Large Banks (assets over $50B) are subject to LCR requirements
40% (generally) of public funds must be held in High Quality Liquid Assets (HQLA) which can limit the banks ability to earn vs consumer or business deposits
Deposits become more expensive to collateralize
Decreased attractiveness of public funds has resulted in reduced “interest”
Basel III Liquidity & Capital Ratio Requirements
Community Banks (assets under $50B) & Local Communities
Growth in public fund deposits occurring at community banks
Increased funds available for local lending
Your deposits are re-invested locally to support residents, businesses, &
municipalities
Balance Sheet and Margin Management
Loan to Deposit RatioFlush with cash – may not wish to grow depositsSignificant Loan Growth – deposits are neededGenerally less costly than borrowing from the Fed
Cost of Funds/Net Interest Margin Bank performance vs peers Industry trends
2012 2013 2014 2015 2016 2017
Branch Net Closings by Banks & Thrifts since 2012
98,403 88,812
Steady Acceleration of Branch Closures YoY
Source: S&P Global Market Intelligence, 01/23/2018
New Tax Law - Impact on Muni Notes & SIBs
Lower Corporate Tax RateMay reduce demand for bank qualified
municipal notes/SIBs from banks
The Good News…
Relatively high after-tax yields on Municipal notes are still attractive to individual investors.
Earnings Credit Rate (ECR)
Earnings Credits Used to eliminate or reduce fees for banking services
Generated from Checking/NOW balances
Applied toward banking service activity costs.
Earnings Credit Rate (ECR)
Generally calculated on checking/NOW accounts, not savings or MMAs.
Depending upon the bank, savings and MMA balances remain desirable
Often correlated with the U.S. Treasury Bill rates, but not always.
Low Interest Rate environment means balances generate less in Earnings Allowance due to a low Earnings Credit Rate
Earnings Credit Calculation
(Service Cost/ECR) X (Days in Yr/Days in Mo.) (Reserve Requirement)
= $1,802 ($1.00/0.0075) X (365/30) (0.90)
Monthly BalanceRequirement=
Monthly balance required per dollar of service:
Example:
Earnings Credit Calculation
Balance Requirement for total monthly Service cost:
Service Cost/(ECR x 30/365)Reserve Requirement
$1,000/(0.0075 x 30/365)0.90
Monthly Balance Requirement
=
$1,802,000 =Example:
Minimizing Costs & Maximizing Potential
Reduce Number of Bank AccountsMultiple bank accounts
Hamper effective cash control Increase balance requirements
Create frequent interbank transactions Driving up costs Increasing potential for errors
Time-consuming to manageSource: NYS OSC Pub. “Investing & Protecting Public Funds; April 2016
Minimizing Costs & Maximizing Potential
Consolidating accounts
Consistent with accounting requirements to minimize fees
Co-mingling of funds permissible under GML Sec.11(6)
Improves overall interest earnings potential
Source: NYS OSC Pub. “Investing & Protecting Public Funds; April 2016
Proposal for Banking Services
Formal RFP
Clear outline of response and requirements by bank and municipality. Can help meet unique needs Larger or more complex municipality Can become transactional Restrictive in responses Significant time/resources required
Proposal for Banking Services
Informal RFP Smaller or less complex municipalitySavings in time/resourcesAllows for creativity and flexibilityNot always apples to apples when reviewing offers
Frequency Can be open ended
- Changes at current bank, changes in industry, - Changes in your market
Defined period – every X number of years
QUESTIONS
Director of Government Banking
[email protected] – Office716-560-3996 – Mobile
BANK ING | IN SURANCE | INVESTMENTS | EMPLOYEE BENEF I T S
Top 10 Ways to Strengthen Your Banking Relationship
Presented By: Joe Rulison
Communicate
Appreciation
Technology
Rising Rates
Hard Fees vs.
Soft Fees
Value of Liquidity
Asset
Treasury Service Plan
Options
QUESTIONS?