BNY Mellon’s move to charge large depositors a fee not necessarily a strategy others will follow.
Bank of New York Mellon on Thursday said it would begin charging a fee on deposits over $50mn. But this is likely not going to be followed by other banks, mainly because some banks will consider the cash as source of funding for now.
Still treasurers should probably be ready for that conversation and weighing of options should their banks start charging a fee on deposits.
“Mellon’s not really a bank anyway,” said a treasurer at a US consumer products multinational. “They’re more into managing trusts; they’re an investment house. They’re not a significant deposit taker. For guys like Citi, BofA or even J.P. Morgan, it’s a different situation – they’d probably think of it as cheap funding so they’d take it anyway.”
As for this treasurer’s company, it has cash in banks but most of it is offshore. And if their foreign banks decided to charge a fee? “We’d have to have a discussion about moving it, although we couldn’t bring it back to the US because of taxes. That would be a material number,” he said.
BNY Mellon said in a statement that it was planning on charging the fee because of the changes of cash management strategies of its clients – many of whom have de-risked their assets and moved cash to the safety of short-term deposits. But this can be a significant cost to the bank, BNY Mellon said in its statement. “The transient nature of these new deposits prevents us from investing our balance sheet to cover the costs from regulatory ratios and deposit insurance,” the bank said.
The MNC treasurer said he understands the reasons for BNY Mellon to start charging a fee. “It seems outrageous but when you start thinking about it, it makes sense,” he said, adding there was a cost to the legwork the banks have to do in processing, reporting and investing the cash. Also, where is BNY Mellon supposed to put the money that will help it deliver on the interest rate they promise? “People overlook the dynamics of pricing of short-dated instruments,” he said. And in the current environment, “it doesn’t take a lot of price movement to wipe out any gains. And if you’ve already got more money than you know what to do with, then why would you want to take on more unless you can cover your cost of risk.”
“It’s like trying to finish that 48-ounce prime rib,” the treasurer said. “After a while you just don’t need another bite.”