Pub. 6 2016 Issue 3

provides insurance on large-dollar deposits with daily liquidity options. 3. Yield expectations are likely to adjust downward. Banks should be aware of the potential impact of MMF reform on customer interest rates. As MMF reform rules go into effect and institutional depositors move their funds to investment options that offer stability, they will expect to pay for this safety. For banks, this change in expectations could mean that entire customer classes become more profitable. The true safety-conscious customers will be comparing bank rates against government MMFs. At the end of September, the top government money funds were yielding less than 30 bps, 4 below what many banks would be willing to offer for these same deposits. With the lure of the higher yields paid by MMFs gone or severely reduced, much of this money will migrate back to its traditional home: banks. And by using ICS, banks have the flexibility to negotiate the rate directly with the institutional depositor, balancing bank and depositor priorities. This could hardly come at a better time for banks, par- ticularly for community banks, which have had a harder time attracting new deposits, according to recent FDIC data that shows most deposit growth centered in larger banking institutions. 5 The exact impact that a flood of institutional deposits could have on customer rates is still uncertain, but for reasons stated, it could have a moderating influence on deposit rates. Given this confluence of factors, as the fallout from money market fund reform settles and the environment for institution- al deposits becomes clearer, banks may very well continue to grow as an essential partner to these depositors, and ICS could be an essential tool for banks looking to take advantage of this opportunity. w © 2016 Promontory Interfinancial Network, LLC. About the Author Glenn Martin is a Regional Director at Promontory Interfinancial Network. Promontory provides unique balance sheet and liquidity management services, including CDARS®, ICS®, IND®, Yankee Sweep®, Bank Assetpoint®, and Residential Mortgage NetworkSM for members of its nationwide network of banks. www.promnetwork.com 1 MONEY FUND INTELLIGENCE XLS - Historical Asset Totals & Crane Indexes, October 2016, Crane Data. 2 MONEY FUND INTELLIGENCE XLS - Historical Asset Totals & Crane Indexes, September 2016, Crane Data. 3 2016 AFP Liquidity Survey, Report of Survey Results, July 2016, Association for Financial rofessionals. 4 MONEY FUND INTELLIGENCE XLS - Historical Asset Totals & Crane Indexes, September 2016, Crane Data. 5. FDIC Summary of Deposits Survey, 2016 23 ISSUE 3. 2016