Pub. 8 2018 Issue 2

8 www.azbankers.org In recent months, U.S. banks have been bracing for increased competition for customer deposits. According to the Bank Executive Business Outlook Survey (2018, Q1) a record number of bank respondents (76 percent) reported facing more competition for deposits over the past year and almost 90 percent believe it is only going to get tougher. 1 Source: Bank Executive Business Outlook Survey 1st Quarter, 2018 In fact, the combination of rate hikes (more are expected later this year) and the Federal Reserve’s $1.5 trillion reduction of its balance sheet should continue to push deposit costs upward. With the Fed not reinvesting the principal proceeds from maturing securities, liquidity will be pulled from the markets and banking system, reversing the impact of the first and second Quantitative Easing. And banks are bracing themselves for more competition from the nation’s largest banks, as well as from non-traditional players that include the likes of fintech companies, Goldman Sachs’s Marcus, and the potential entry of Amazon. Reciprocal Deposits Fortunately, the enactment of the Economic Growth, Regulatory Relief, and Consumer Protection Act should offer banks some relief. This important new law provides that most reciprocal deposits are no longer considered brokered deposits. Reciprocal deposits are deposits that a bank receives through a deposit placement network in return for placing a matching amount of deposits at other network banks. Although there are a number of Good News for Banks: Congress Makes Way for Reciprocal Deposits By Glenn Martin, Regional Director, Promontory Interfinancial Network, LLC, Arlington, VA A LESSER-KNOWN PROVISION OF A NEW LAW JUST CHANGED THE MARKET FOR DEPOSITS, AND IT COULD NOT HAVE COME AT A BETTER TIME FOR BANKS, ESPECIALLY COMMUNITY BANKS. THE PROVISION, WHICH IS PART OF THE REGULATORY RELIEF PACKAGE FOR BANKS JUST SIGNED BY PRESIDENT TRUMP, PROVIDES THAT MOST RECIPROCAL DEPOSITS ARE NO LONGER TREATED AS BROKERED. AS A RESULT, WELL-CAPITALIZED BANKS CAN NOW ATTRACT MORE LARGE-DOLLAR, LOCAL RELATIONSHIPS AND, IN TURN, HAVE MORE COST- EFFECTIVE FUNDING ON HAND TO FINANCE LENDING IN THEIR COMMUNITIES.