Deposit Reclassification, also known as a retail sweep program, is a Federal Reserve Board acknowledged practice that reduces your reserve requirement through classifying your institution’s checking accounts as savings, which are not subject to reserve requirements. Currently, your reserve requirement is met with your institution’s non-earning vault cash and reserve balance at your local Federal Reserve Bank (FRB) or at a “pass through” account with another financial institution.
Federal Reserve Balances behave as an illiquid asset, earning minimal interest (Fed Funds). Your institution can convert these assets with Deposit Reclassification into earning assets with a much better rate of return – perhaps with commercial, mortgage, and consumer loans, or higher yielding securities in your investment portfolio.
The Deposit Reclassification conversion process can be completed within 45 days and requires very little time from your personnel. Deposit Reclassification is completely under your control since it uses your existing personal computer (PC) software. Most importantly, the Deposit Reclassification project is approved by your local Federal Reserve Bank, in advance, in order to comply with FRB Regulation D.
Deposit Reclassification transforms excess reserves balances at the FRB into new funding sources for loans and investments. As a result of lowering your reserve requirements, you have the opportunity to unlock additional earning assets through the reduction of vault cash.
Think Inside the Vault: Put Non-Performing Assets to Work for You!
The “cost” of cash is increasing and bankers are recognizing a loss in an interest-earning opportunity when keeping excess vault cash. By instituting better vault cash management practices, banks and credit unions can immediately improve earnings.
"Deposit Reclassification is a solution that allows a bank or a credit union to reduce the amount of money that they're carrying in their reserve requirement at the Federal Reserve Bank. In such a way, that they can free that money up to come back to their bank or credit union, for them to deploy out into their community." - Douglas Ceto