Money flooded into bank-managed commercial sweep accounts last year, helping drive up revenue from these short-term investment accounts.
According to a survey from Treasury Strategies, a Chicago-based cash management consulting firm, revenue from sweep accounts topped $874 million at 510 of the largest U.S. banks - a 87% jump in the 12 months ending last October.
"Sweeps have really become a core cash management product at banks," said Anthony J. Carfang, a partner at Treasury Strategies.
Banks have increasingly turned to cash management products as a way to broaden financial relationships with existing corporate customers and attract new business from small and midsize companies.
Mr. Carfang said banks manage 70% of the assets in commercial sweep accounts today, "but sweeps only control 4% of all corporate liquidity, so the banks have a real long way to go before the potential in this market is fully tapped."
Sweep accounts move corporate customers' excess balances into short-term deposits or investments, such as money market funds, repurchase agreements, or government securities.
Money market funds are the fastest-growing investment option in sweeps, jumping 120% to $24.4 billion in 1995, due to their relatively higher yields.
Most money, however, is still held in overnight instruments, which account for $47 billion, or 51%, of all the assets in sweep accounts.
"In the past, (banks) were afraid income would decline if demand deposits fled into cash sweeps, but now they're realizing the service actually brings in more money," Mr. Carfang said.
Indeed, the average size of a sweep account at a commercial bank was up 17%, to $858,000, last year. Banks' fee income also increased to an average of 95 basis points of assets under management, up from 83 basis points in 1994, and 60 basis points in 1993.
Total assets in sweep accounts rose 64% to $92 billion during the 12 months ending last October.
"Customers are demanding these services," Steven D. Potter, a product development manager at Barnett Banks, Jacksonville, Fla. "They have the dollars, and most are tired of managing their own demand deposit accounts and would rather have us do that."
Barnett had roughly 2,500 corporate sweep customers in January, up 1,000 from the same time last year. The banking companies' average account had $400,000 in it last year, 25% more than the average account balance in 1994.
Some of the largest banks in the corporate cash management business include PNC Bank Corp., Chase Manhattan Corp., Chemical Bank Corp., NationsBank Corp., and Citicorp, according to Treasury Strategies. But the company would not disclose individual banks' sweep activity.