Financial reform of the banking industry means changes for business customers, too.
Those changes were detailed at a presentation at the Association for Financial Professionals annual conference in Miami, hosted by a panel of banking experts.
Here’s what the panelists red-flagged:
No more unlimited FDIC insurance
There’s been talk of a possible extension, but the closer we get to see an end to the FDIC unlimited guarantee on non-interest-bearing transaction accounts.
And that has a good number of companies rethinking how they handle their bank accounts.
To give you a benchmark: Two in five (41%) of CFOs expect to make changes to their deposit balances if the unlimited guarantee expires, according to the 2012 Liquidity Survey by the Association.
It’s worth taking a step back to decide whether you’ll follow their lead and reduce your short-term investment balances maintained in non-interest-bearing bank accounts in 2013. The companies that plan to do so say they will within the next six months.
Of course you might decide you don’t have to make an adjustment – many CFOs are more confident in the safety of their deposits than they were two or three years ago, before the increased financial oversight on big banks.
But you definitely want to have the conversation with other decision-makers.
No end to record-low interest rates
The Feds made it clear: Those record-low interest rates aren’t going anywhere anytime soon. And that’s something you likely feel every day.
Perhaps the biggest impact of this on businesses: to their sweep accounts.
More than likely the purpose of sweep accounts has changed for you. Before you were using a sweep account to maximize earnings on your bank balances.
But now you want to be using a sweep in one of these two instances:
- To diversify away from bank risk, or
- If you’re moving to something better than a bank (to minimize yield risk).
No more Regulation Q
This final development goes hand-in-hand with the previous one.
This summer’s repeal of Regulation Q should lead to an increase in bank deposits. But with rates as low as they are now, you don’t stand to make much off those accounts anyway.
Put this on your long-term strategy list. The AFP panel believes in the next five to 10 years the Reg Q repeal, coupled with higher interest rates, will make this a major issue to consider.
