Magazine article American Banker

How to Attract Public-Sector Deposits

Magazine article American Banker

How to Attract Public-Sector Deposits

Article excerpt

The winner of our contest to find ways of keeping and building public deposits in a world where rate alone means so much is John W. Logan, executive vice president of First American National Bank, Nashville.

Of course I was influenced in his favor because his letter addressed me as "CEO of Schmidlap National Bank, NT and SA."

His letter, though, had real meat in it for bankers, and it is a pleasure to appoint him president of Schmidlap for a day. Mr. Logan writes:

"The local government sector of the economy is being poorly served by the banking industry. Many counties, towns, school districts, and public authorities follow cash management practices that are Neanderthal by corporate standards. Banks possessing modern cash management technology could be the agents of the quantum jumps in efficiency in this sector.

"Why has this not occurred? First, because traditionally local governments have been reluctant to pay fees for banking services. In the past banks offered checking accounts and other services to local government anyway, counting on the residual demand deposits to defray some of the cost of processing the enormous volume of paper these customers generate. The cost of processing paper has gone up, and the value of the deposits down, so many banks have simply given up.

"Which brings us to the second reason. Providing technologically advanced services to these customers-electronic funds transfer, automated clearing house, lockbox, on-line PC access, and sweeps-has proved difficult because of arcane regulations.

"With a corporate account, computers track the customer's balance throughout the day, post transactions overnight, and sweeps balances from the demand accounts to an interest-bearing repo liability of the bank, or to a bank-managed money market mutual fund. …

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