Wall Street Reform Revamps Biz Deposit Market
SAN ANSELMO, Calif.-A new analysis suggests that the current landscape of business deposits is likely to change as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and in particular, Section 627, which repeals Section 19(i) of the Federal Reserve Act.
According to Market Rates Insight, the change, which will allow business customers to earn interest on their checking accounts, is projected to trigger a two-dimensional shift in business accounts.
A balance shift among business-account types is likely to occur at the point of rate convergence, the company projected. "Assuming that the interest rates offered on business checking will mirror the rates currently offered on high-yield ($10,000 and over) consumer-checking accounts, it is very likely that balances will shift from business MM and maturing business CDs of nine months or less into business checking due to lack of yield differentiation," MRI said.
It further predicted that a balance shift among institutions is likely to occur due to the anticipated competition for business-checking customers. "Currently, a large number of high-yield retail checking accounts are priced above the national average, which indicates heightened competition," MRI said. "The same scenario exists with MM accounts, but not with savings or CDs, where the majority of the rates offered are below the national average."
The company said in an analysis that banks and credit unions are "sitting on the fence" and are waiting to see what others are going to do before they publish their new business-checking interest plans. "There are two reasons for the wait and see approach," according to MRI. "The first is that non-interest business accounts are very profitable, and any change might jeopardize the profitability of these accounts. Secondly, no one wants to be the first because if business customers do not like the new offer, the institution might lose the account. On the other hand, if the first insinuation to introduce a new business-checking account with interest is successful, it will take market share from others."