ABOUT SWEEP ACCOUNTS
In-House Sweep Accounts
Community banks that need to offer sweep account solutions to their customers have traditionally found the easiest approach is to move customers’ excess deposit funds to third-party sweep accounts. But with that approach, the bank is sweeping valuable deposits off their general ledger, and may earn a pittance of around 25-35 basis points annually, which means less control and significantly less profitability.
The ideal choice for the community bank is to offer an on-balance sheet daily sweep program.
How does it work? With an in-house sweep account solution using Repurchase Agreements (“repos”), no money ever leaves the bank -- the balances simply move between types of accounts, the demand deposit account (DDA) and the repo. A repo is a contract between the customer and the bank and constitutes short-term debt obligations of the bank secured by securities which are direct obligations of, or are guaranteed as to principal and interest by, the United States or one of its agencies.
Repos utilized in a sweep program are sometimes called “overnight” repos because they mature on the next banking business day. Each banking business day, after all deposits and checks affecting the DDA have been processed, the bank’s core processing system automatically looks at the balance in the DDA. When the DDA has a balance in excess of the target balance, the system transfers the excess funds into the investment account which initiates the repurchase agreement.
Historically, there have been two primary challenges:
- Regulatory compliance
- Ease of management & administration of the program
Bank Sweep Manager removes those challenges and increases profitability and control for the community bank. BSM is a proven, complete turnkey solution for easily managing an in-house sweep account program -- with over 400 community bank customers in over 39 states.