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Dodd-Frank repealed the ban on paying interest on business checking accounts. No longer necessary to circumvent that restriction, sweep accounts with overnight repos can still protect and retain high-balance depositors.
February 4
In "
Unfortunately for the reader who actually is evaluating the options, the article doesn't present a very clear picture of ICS. To begin, the author says the cost of ICS to his bank would be 15 basis points. In fact, Promontory offers no-obligation opportunities for banks to use ICS for free through June 30. And when fees do apply, they are only 12.5 basis points for banks that meet relatively low minimum use thresholds. This is one of the lowest fee levels in the industry. Moreover, using ICS does not impose other material costs on banks, such as reduced asset liquidity.
The article goes on to criticize ICS for "sending [customers] to a website other than [the bank's]," implying that ICS interferes with the bank's customer relationships. But the website in question is simply the ICS Depositor Control Panel, a secure site with the name of the customer's relationship bank on it, which the customer can visit to see its ICS balances and related information. By agreement with Promontory, an ICS bank can choose to operate its own Depositor Control Panel if it prefers. So far, though, all ICS banks – 1,000 of them – have chosen to let Promontory do the job, which it does at no additional charge.
The author also dislikes the fact that the names of other banks appear on the statements of ICS depositors. But of course they must. Customers want to know where their money is. More to the point is that the destination banks do not see the customer's name. When a relationship bank places a customer's funds using ICS, the funds are sent from a transaction account at that bank to demand or money market deposit accounts at other member banks in amounts below $250,000. This makes the customer funds eligible for FDIC protection. But while funds are placed with multiple banks, customers work directly with just one – the relationship bank, a bank that acts as the customer's agent and custodian and maintains full ownership of the customer relationship. The relationship bank sets the rate. Customers communicate with only the relationship bank's service team.
The most puzzling part of the article is the author's statement that, even though he is a lawyer, he has "struggled with the complexity of the [ICS] program." To date, none of the many hundreds of banks that participate in the ICS service has reported any such difficulty to us. On the contrary, banks have told us that they find ICS easy to understand and use. Perhaps that's why the amount of outstanding deposits placed by ICS banks is not $1 billion, as the author says he heard, but nearly $8 billion and continuing to grow.
To be sure, repo sweeps have a legitimate role to play, and banks should certainly consider them as part of the range of available options in a post-TAG world. But until now we had not heard the suggestion that these arrangements are less complex than FDIC insurance. Nor is that suggestion easy to square with the detailed guidance and federal regulations on repo sweeps, which include technical requirements (such as for daily confirmations) that, if not met, can entirely thwart the depositor's protection.
We do agree with the article that it's important for bankers to be able to offer their customers peace of mind. We also know, from long experience, that there is no better source of peace of mind than access to FDIC insurance. The American Bankers Association has endorsed ICS. The Independent Community Bankers of America promotes the service to its members.
Phil Battey is the senior vice president of external affairs at Promontory Interfinancial Network LLC.
