Five Discussions to Have With Your Banker
The pace of change in the business offices of universities has never been faster. All eyes are on how institutions will manage the challenges of cost containment pressures, lower federal and state support, and the changing marketplace for higher education. With more demands on your resources—including personnel, capital and time—you have to ensure you are getting the most out of your business partnerships.
Of these partnerships, one of the most important is your banker. It is crucial that you keep up with new opportunities in the evolving field of banking, specifically, how your bank can help you face tomorrow’s challenges. To that end, here are five conversation starters for your next meeting with your banker.
Should I diversify my funding sources?
The main source of capital in higher education remains the public debt market. This still makes sense, with interest rates at record lows and borrowers able to access funds for 20, 30 or even 100 years. However, there are other options to explore. Continuing a trend from the past few years, direct placements of debt financing are competitive in a number of situations. This is due in large part to the elimination of uncertainty regarding renewal risk in the letter of credit market and the higher costs to be imposed by Basel III requirements. In addition, medium-term capital solutions are gaining favor for the purchase of equipment—such as IT, vehicles, medical equipment and energy efficiency projects—that better match the liability to the useful life of the asset. Done in some instances on a tax-exempt basis, the costs are remarkably competitive. Finally, review how traditional bank credit solutions—lines of credit, and term and bridge loans—can supplement your liquidity position and add flexibility to capital financing decisions.
How can I improve my back-room efficiency?
Relative to other industries such as health care, higher education was later in implementing treasury solutions that work toward the goal of a paperless office. That has changed. A concerted effort is underway in higher education to better use banking industry tools to reduce the number of checks printed, to make payments electronically and to increase the frequency of card-based payments. That means reduced overhead, substantial rebates and improved cash flow. There are solutions that even allow you to outsource your A/P functions completely, including check writing. If you have a medical center, certain new technologies improve revenue cycles for both hospitals and physician groups. Finally, if you are responsible for investing short-term cash balances, consider using an online investment portal, a cost-free tool to better analyze, track, and transact funds through popular families of money market funds.
What should you know about changes to FDIC insurance?
In 2010, Dodd-Frank legislation caused all non-interest-bearing transaction accounts held at any banking institution to be fully insured by the FDIC without limit effective until Jan. 1, 2013. FDIC insurance dropped back to a nominal amount on Jan. 1, 2013. This means deposits in such accounts over the nominal FDIC insured amount are now backed by the strength and stability of your bank. You may be compelled by policy to revisit your liquidity structure. However, if your policies allow you flexibility, here are some things to consider: First, your non-interest-bearing deposits have been offsetting some or all of your banking fees. The earnings credit rate on your deposits is generally a good deal compared to the minimal interest rates being paid on Treasuries, money market funds and other short-term investments. Second, most major banks’ capital and liquidity ratios are far better than they were two years ago when the FDIC insurance was extended. Check your own bank’s capital ratios and liquidity before making your decision.
How should I respond to my institution’s international growth?
We’ve clearly moved to a globalized higher education economy, and therefore need to efficiently send funds abroad to support faculty research, student foreign exchange programs and the purchase of equipment or real estate overseas.
You may ask, “How do I know our staff will be able to quickly access their funds while in Beijing?” This is where it helps to access your bank’s global network to take advantage of local knowledge. Also make sure you are using your bank’s foreign exchange capabilities in your planning. For instance, the use of forward contracts can eliminate much of the risk inherent in future purchases and receipts involving other currencies. If you are a consistent user of foreign exchange, an FX portal—a bank’s web-based tool—will make your access faster and more convenient.
There also is growing interest in “chip & pin” cards, now used in Europe, for international purchase card programs. Finally, purchase cards based in foreign currencies, such as pounds sterling and Euros, are valuable tools for campuses that are located abroad, while retaining full monitoring capability back home.
What more can I do for faculty and staff?
Find out about banking solutions that bring preferred Group Banking checking, savings and borrowing programs to your colleagues. These are designed to simplify their daily banking and investing, and help them pursue long-term financial goals. You may wish to engage your institution’s Human Resources and Benefits staff in these conversations. Comprehensive programs might include:
- Access to pay through paycards and checks for your unbanked employees
- Health care accounts such as Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs) and Flexible Spending Accounts (FSAs)
- Fully integrated Retirement and Benefit Plan services that are easy for your colleagues to understand and access
- Investments and Wealth Management packages to properly plan and implement a retirement plan, save for educational expenses or pursue other personal goals.
John Lenckos is a senior vice president at Bank of America Merrill Lynch.