Top FAQ on Deposit Reclassification - Part 2


In our blog, “Top 3 FAQ on Deposit Reclassification,” my colleague covered frequently asked questions regarding logicpath’s retail sweep program, Deposit Reclassification; including the legality of the program, client impact, and what sub-accounting means, but let’s discuss some more common questions I get about Deposit Reclassification. In this blog, I’ll discuss what threshold percentages are, as well as how Deposit Reclassification impacts call reporting and peer-to-peer review.

What is a threshold percentage?

A threshold percentage in logicpath’s Deposit Reclassification program determines the proportion of the checking deposit account that is swept into the savings sub-account.

The Deposit Reclassification algorithm, which determines the threshold percentage, is unique because it takes two factors into consideration: account type and how much is typically held within an account.

When Deposit Reclassification is turned on, the algorithm analyzes each account and categorizes them into a threshold percentage group. For example, a free college checking account that typically holds $2,000 each month, may be placed in a 50 percent threshold group. Based on this type of account and the lower balance amount, the Deposit Reclassification program anticipates it is more volatile. This free college checking account’s threshold percentage is going to be a lower threshold tier, meaning Deposit Reclassification sweeps less funds from the transaction account to the sub-savings account. By keeping half of the account balance in the checking sub-account, the Deposit Reclassification program is reducing the number transfers between the checking and savings sub-account; therefore allowing the account to be reclassified for longer, or the entire month. However, not every college checking account is assigned the same threshold percentage, because not every account averages the same account balance or usage. Deposit Reclassification assigns threshold percentages for each account based on the behavior of the account.

Inversely, the threshold percentage will be higher for a more stable or high balance account, meaning Deposit Reclassification will sweep more funds from the transaction account to the savings sub-account. For example, a customer/member generally keeps an average of $10,000 in their premier checking account; Deposit Reclassification is going to sweep a higher percentage into the savings sub-account, lowering the total amount subject to reserve requirement.

Deposit Reclassification threshold percentages are optimized by account type and activity, and adjust automatically to reduce reserve requirements to a minimum; allowing clients to significantly reduce their Fed balance due to reserve requirements.

Do your customers see sub-accounts? Click here to read more.

Will Deposit Reclassification impact my call reporting and peer-to-peer reviews?

For banks, the answer is yes. Deposit Reclassification impacts quarterly call reports and peer-to-peer reviews, due to a portion of checking accounts being reported as savings. Schedules RC-E, RC-K and RI are affected by all retail sweep programs. The deposits reported as savings on these schedules cause peer-to-peer reviews to reflect lower checking deposits and higher savings deposits. However, most banks use a retail sweep program to reduce their Fed balance due to reserve requirements, so most bank peers are already reporting deposits as reclassified. This is due to the fact that Deposit Reclassification was pioneered in 1994.

For credit unions, Deposit Reclassification impacts the quarterly call report (NCUA 5300), but not peer-to-peer review. The NCUA 5300 includes a separate line-item to report sweep accounts, called Line 27. Shares and Regular Shares are still affected on the NCUA 5300, but a quick review of Line 27, Dollar Amount of Share Drafts Swept to Regular Shares or Money Market Accts as part of Sweep Program, displays if a peer is running a retail sweep program like Deposit Reclassification.

Deposit Reclassification is 25 years old, and most banks and credit unions recognize it as an established process, so the impact on reporting in the big picture is minimal.

I hope this blog helped answer some more questions you have about Deposit Reclassification. Let me know what I can answer in the comments below, or request a presentation.