ABOUT SWEEP ACCOUNTS
Regulatory Issues
With in-house sweep approaches, regulatory compliance has traditionally been a major administration and risk concern for the community bank.
Regulation D limits the number of transfers and withdrawals from interest-bearing accounts (such as traditional savings or money market accounts) to a total of six per calendar month or statement cycles. It is the bank’s responsibility to ensure those limitations are not exceeded, by either preventing excessive withdrawals and transfers or by adopting procedures to monitor such activity.
However, in-house sweep offerings can be handled with Repurchase Agreements (“repos”) -- which are not included in the regulatory or accounting definitions of the term “deposits” and therefore interest can be paid on them. Though repos are not FDIC insured, the bank’s repurchase/repayment obligation is well collateralized with government securities.
A bank establishing an in-house sweep program utilizing repos must obtain a written repurchase agreement that accurately describes how the program works. The Government Securities Act of 1986 (GSA) requires an institution to obtain a written repurchase agreement for each repurchase transaction. The GSA also requires customer confirmations to be done daily, along with additional reporting and documentation for compliance.
Without a solution like BSM, administrating an in-house program with repos can be a very manual, time and resource-intensive undertaking -- and still not ensure compliance that leaves the bank open to significant regulatory risk.
For a detailed paper on Sweep Accounts, In-House Sweeps and Repos, please fill out our quick request form and we'll send the paper to you in an email reply.