The operational portion of your balances can be effectively employed for bank funding.

The net effect is that banks want to attract operating balances. To ensure your deposits qualify, banks must quantify the relationship between your deposits and your transactional activity. Any funds not immediately supporting payment flows for daily operations must be treated as non-operating balances. 

Your non-operating balances are less valuable to banks, because they must be placed in High Quality Liquid Assets (HQLA). This excludes them as a funding source for a bank’s larger asset books and attracts FDIC and capital charges, among other costs. Within the U.S., the Federal Reserve introduced guidelines in December 2014 that subject Global Systemically Important Banks (G-SIBs) to higher capital costs for non-operating balances than non-G-SIBs. 

An increased focus on operating products.

Certain deposit products will be decidedly less attractive for banks to offer, particularly in the U.S. where differences in regulatory treatment, including G-SIB capital requirements, have curbed some short-term investment alternatives. Those with less than 30 days duration are most impacted, including Money Market Deposit Accounts, time deposits, hedge-fund deposits, Fed Funds traded and certain types of liquid regulatory cash.

Banks will value consistent day-to-day funding.

As banks more finely analyze your operating balances predictability serves as a key indicator of consistency. The very nature of operating balances is that they fluctuate from day-to-day, which is different from balance volatility. Spikes in deposits that relate to out-of-the-norm, non-repetitive events create day-to-day volatility, and banks must classify these funds as non-operational balances. For example, pre-funding your account to cover a large payment creates unevenness at the time of deposit and cash outflow. This qualitative difference in the treatment of your balances has a quantifiable impact on how banks view your operating cash and how you must manage it on a daily basis.

Smoothing the volatility of operating balances becomes a necessity.

The challenge for companies becomes two-fold: how to even out daily operational flows, fluctuations, which have differing degrees of variability depending on the underlying business, and how to manage true balance volatility.

One way to achieve consistency and manage balance fluctuations is to consolidate operating flows with fewer cash management providers since a portfolio effect can accrue with larger consistent balances. 

To address balance volatility, expect your banks to suggest tools to help you manage your flows. Prefunding is one such tool. In the case of a large M&A transaction, for example, your bank will likely work with you to coordinate the timing of transaction funding to minimize volatility.

IDL is increasingly a valued resource requiring measurement and transparency.

Today, intraday mismatches between payments and liquidity exist as there areneither explicit capital charges for intraday liquidity, nor is there a substantial short-term liquidity supply. This treatment is changing, however, as regulators consider formal reporting requirements of key IDL metrics for banks. The result is to increase IDL transparency and potentially the cost of its usage in the future.  

Intraday self-funding will become a necessity.

Mismatches between your cash inflows and outflows require banks to deploy IDL. Payment prioritization and timing are essential to matching cash flows throughout the day. Banks will look to corporations to self-fund their accounts during the course of each day. 

Increasing bank operating deposits in your deposit account to support payments can facilitate balance sheet stability and reduce the use of intraday bank credit lines. Reviewing sources, uses and timing of funds is crucial, and pre-funding accounts can greatly relieve IDL pressure. This may require your treasury group to change its investment practices where short-term and overnight placements divert liquidity from where it is required.