Magazine article American Banker

Important Findings from the Survey of Correspondent Banking

Magazine article American Banker

Important Findings from the Survey of Correspondent Banking

Article excerpt

NEW YORK -- The American Banker surveyed approximately 600 commercial banks to identify and rank the top domestic and foreign correspondent bankers. Listed below are some of the survey's more important findings.

* There were 344 banks with $10 million or more in domestic correspondent balances at midyear, compared with 300 a year earlier. These banks had $29.53 billion in domestic correspondent balances, up 8.4% from $27.25 billion a year earlier. The major reason for the gain was the inclusion for the first time this year of all thrift correspondent balances in the figures reported by banks. Excluding thrift correspondent balances, correspondent balances due other U.S. commercial banks declined 1.7% to $25.93 billion.

This slight decline in correspondent balances is primarily due to the rise in the earnings credit factor over the period. The earnings credit factor is an interest rate -- usually the 90-day Treasury bill rate -- used by correspondent bankers to value correspondent balances. The 90-day T-bill rate rose approximately 81 basis points over the year ending June 30, 1984.

If the prices of correspondent services remain unchanged, correspondent balances tend to fall as interest rates rise, since a lower level of balances are needed to pay for correspondent services. Preliminary findings of a survey of correspondent banker conducted by Robert Knight Associates, Alliance, Neb., finds almost no increase in the prices of correspondent services over the period of the study.

* Mr. Knight produced another interesting survey finding. The American Banker's survey has been criticized by some for measuring correspondent banks by balances only. Some argue that fees are becoming a more significant factor in correspondent banking. Mr. Knight finds that "the overwhelming majority of correspondent bankers report that the amount of compensation in the form of fees is less than 1% or 2% of revenues derived from traditional correspondent services. …

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