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Why Deposit Reclassification is Important to Financial Institutions

A financial institution’s main goal, like most businesses, is to increase efficiency and profitability, and one of those ways is to minimize non-interest bearing and low-earning assets. A large low-earning asset for most institutions is its Federal Reserve balance due to Reserve Requirements. Deposit Reclassification is important to community banks and credit unions, especially in a rising interest rate market, because it allows you to reclaim your Federal Reserve balance, and invest that money ...

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Topics: Deposit Reclassification, Retail Sweep Program, Federal Reserve Balance

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When Should I Implement Deposit Reclassification?

  Deposit Reclassification, commonly called a retail sweep program, helps banks and credit unions reduce and even eliminate reserve balances; allowing them to deploy the freed-up funds for profitable lending and investment purposes. A bank or credit union’s motivation to implement deposit reclassification depends on costs versus benefits. Implementing Deposit Reclassification makes sense at all times, but is even more important when interest rates are rising and expected to continue to rise, whe...

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Topics: Deposit Reclassification, Federal Reserve Balance

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Working Together - Regulation D and Deposit Reclassification

Deposit Reclassification, also known as a retail sweep program, allows financial institutions to reduce their Federal Reserve Bank reserve requirement. The Federal Reserve’s 12 CFR 204 Regulation D sets out uniform requirements for all depository institutions’ reserve balances - either as vault cash or as funds held with their local Federal Reserve Bank. Retail sweep programs reduce reserve requirements, which Regulation D sets out for financial institutions to observe. How do these two opposing...

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Topics: Regulations, Deposit Reclassification, Federal Reserve Balance