Magazine article American Banker

VIEWPOINT: Revamp AccountsOn Reg Q Repeal

Magazine article American Banker

VIEWPOINT: Revamp AccountsOn Reg Q Repeal

Article excerpt

Byline: Brian Boardman

On July 21 banks can begin paying interest on commercial checking accounts. This is a result of a provision in Dodd-Frank that repealed Regulation Q.

Commercial checking has not undergone a change of this magnitude in decades. Account models will now require review and updating to meet the expectations of customers.

Some banks may start by offering products with low interest rates akin to their consumer NOW accounts so that they can immediately advertise that they offer interest-bearing business accounts. Those that are more aggressively focused on winning new accounts may elect to offer higher interest rates.

Others may also take quite a different tack by deciding that in lieu of paying interest, they will analyze their product to determine what changes they can implement to increase the product's value to commercial customers without having to incur the added interest expense.

The most successful banks will find a way to manage both expense and return by developing hybrid accounts structured to award earnings credits up to the amount of service charges and then pay interest on excess balances. Such products offer a combination of interest, fees and product features that meet the transactional, cash management and credit needs of the target market.

For large banks, the low interest and hybrid options appear to be the best choices because of the high interest expense they would otherwise incur by offering a high interest product. In addition, their competition will be mainly from other big banks so the need for higher interest products is probably minimal. For smaller banks that do not really compete for commercial accounts, the same options are probably the best.

It's the tiers of banks that fall between the mega and community banks - institutions with between $1 billion and $20 billion of assets - that have the biggest opportunity. …

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