Choosing you Banking Partner
Managing your Banking Relationship
As a finance manager, managing banking relations has been both a difficult and challenging task. Many treasurers inherited banking relationships that had to be maintained with the various banks that composed the corporation’s core group while achieving their main objective: to ensure that all the company’s needs were met reliably and within a reasonable cost (Zietlow and Maness 289).
But what are the things that a finance manager should focus on when trying to determine what bank(s) to chose? Is it based solely on cost? How often so finance managers shop around? Or is it better to just sit tight with the current ...view middle of the document...
regional player, presence in key growth markets, geographic footprint, depth/breadth of service and product offerings, industry sector knowledge, specialty in a specific area, flexibility of fee structure, and use and delivery of services through third-party relationships. Most companies have a core group of banks that the use for their banking needs. This core group consisted of 4-12 multi-tiered banks, with the top two tiers providing the most services and products.
By studying the list of categories above, it is intuitive to think that managing a corporation’s banking relation with its bank is more of an art than science. There are still no set metrics that decide what is to be a better bank than an alternative option. A bank does offer services as their products hence it would make sense for senior financial managers to worry more about service, transparency, and product quality than price competitiveness.
The finance manager must also have full understanding of what the items on an account analysis statement are in order to make a decision. Banks come in two flavors when it comes to analyzing the activity on an account: fee based and compensation balance.
Banks are prohibited to pay interest on a demand on deposit account instead banks offer a credit to companies to help offset the fees charged for services. This credit is called earnings credit rate. This rate is used in conjunction with Service charges for the month (SC) and the numbers of day in a year to calculate the required compensating balances (RCMP). RCMP is the equation that dictates what balance should be kept as a balance in the bank in...