Given the low interest rates banks are paying on deposits these days, you might not think it’s much of a big deal that Thursday marks the end of an 80-year-old ban on banks paying interest on business accounts. But if you thought that, you are clearly not a financial advisor working at a bank.
First the news: July 21 marks the date that the new Dodd-Frank Financial Reform Act lifts the Regulation Q ban on interest-bearing business accounts -- an action that community bankers say is likely to lead to a lot of new accounts being opened by local businesses and a lot of new money coming into community banks from those local businesses.
As Chris Cole, senior vice president of Independent Community Bankers of America (ICBA) told Bank Investment Consultant, “I think that you will see a lot of money being moved by businesses out of money market mutual funds and over to the banks.” He added, “I think this will also make businesses more committed to our banks.”
Some banks have been gearing up for the change.
“It’s hard to say how much more business we’ll get because of this,” said Geoffrey Greenwade, CEO of Green Bank, a new bank based in Houston, “but we started preparing for this a couple months ago, developing a business checking with interest offering. We had it ready to go today.”
The new rules on business accounts should be music to the ears of bank-based reps who generally have to work pretty hard to get the ear of local business owners.
Many bank-based financial advisors report that they devote considerable time making cold calls to businesses, hoping to interest them in moving starting up 401(k) plans for their employees or in switching their 401(k) plan to one offered by the bank’s platform. They also spend a lot of evenings going to local Chambers of Commerce, Lions Clubs and Rotary Clubs, hoping to make themselves known to those business owners.
Winning a business’s 401(k) account, besides being lucrative in itself, can lead to referrals to the investment business of many of the company’s employees and retirees.
Now, with banks getting more of the banking business of those local companies, it may not be as necessary for advisors to go to all those evening meetings and cold calls. Many of the executives and owners of community businesses will be coming to them at the bank.
As ICBA’s Cole put it, “I think the lifting of Reg Q will help the investment programs of the banks. It does change the equation some.”