Regulatory changes: making bank account analysis more difficult.

• Author: Gill, Dan
• Position: TREASURY - Legislation

The stack of account analysis statements that corporate treasury receives from banks each month can be daunting to pick up let alone use to perform a thorough review. And recent legislative and regulatory changes, such as provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act, will make these statements even more confusing.

Treasurers should take the time to understand their account analysis statements and develop solid controls around bank fees, since corporations could experience significant increases in the cost of doing business with their banking partners. There are several areas that may impact an organization's future bank bills.

Account Analysis Basics

Account analysis statements have always been somewhat confusing primarily because they look so different from bills received from other vendors. While the account analysis statement is similar to any bill, the nature of cash management and other banking services in general make them far more complex.

The primary job of the account analysis statement is to report on the services used for each account at a bank along with the volumes and charges for the services that were used. What really complicates account analysis is the concept of "earnings credit." Because banks are not allowed to pay interest on corporate accounts, the concept of earnings credit was developed. This may change with passage of Dodd-Frank.

In theory, earnings credit gives the cash manager the option of paying for bank services either directly or by keeping sufficient balances in the account to offset fees. For years, most cash managers have realized that paying for their bank fees exclusively through balances was a losing proposition because earnings credit is typically only granted on 90 percent of the balances, due to the reserves that the bank is required to hold.

The traditional account analysis statement has three sections. At the top left is the balance section. The bank typically reports the average daily balances for the month in order to develop an average net investable balance that earnings credit will be paid on. The balance calculations involve deductions for float and reserves as well as credits for overdrafts paid by the bank.

The top right is the compensation section. It shows the amount of earnings credit that has been calculated based on the investable balance as well as the totals of all of the services used for the month. This section ends with the net service charges due to...