Banks anticipating Reg Q repeal by exploring new account products.

• Position: MARKETING NEWS

MANY FINANCIAL INSTITUTIONS ARE WORKING on the introduction of a hybrid earned credit rate (ECR)/interest commercial checking account in anticipation of the repeal of Regulation Q that goes into effect July 21, according to Informa Research Services, Calabasas, Calif., which recently surveyed banks on the issue.

Such an account would allow commercial clients the opportunity to offset account fees through "earning credit analysis" first and to earn interest on the potential excess balances, says Randy Rosen, deposit product research manager at the company. Another likely option that will be made available to commercial clients is a commercial checking interest-only product, he notes. This product would offer no "earning credit analysis" and all the account fees would be in hard dollars.

For years, financial institutions have had to devise innovative solutions to provide their corporate clients with a variety of cash management services and to maintain account balances without being able to pay an actual interest rate.

Reg Q repeal

But the repeal of Regulation Q changed that. Restoring the ability to pay interest on corporate accounts has sparked the demand to develop new product and service structures, as well as new rate and fee pricing models, says Zoya Lieberman, commercial services research manager at Informa. "Financial institutions have to design a new strategy for providing products and servicing their commercial clients."

Informa recently released results of a survey conducted late last year dealing with the repeal of Reg Q. The survey included questions concerning cash management services, investment sweeps, earning credit rates and FDIC insurance.

The survey results suggest that financial institutions soon will have multiple commercial products to offer to their corporate customers. The question: Will a financial institution have a "go-to product" or leave it up to the customers to choose which product they desire to open? For example, one of the overall strategy questions from the survey asked the participants the following: "If you are planning on offering a product other than traditional corporate direct deposit account (DDA) with ECRs only, what would be your 'default' product for the new customer?"

The response to question...