Analyze the Impact of Sweeping or Receiving Deposits with ModernFi’s Balance Sheet Report

June 27, 2023 | ModernFi Insights

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Deposit networks, which allow banks to sweep, receive, and exchange deposits, provide meaningful potential benefits to institutions and their depositors. We’ve written at length about the impact of sweeping, receiving, and reciprocating (exchanging) deposits before, but we’ve never formally quantified the benefits. Today, the ModernFi team is happy to release our Balance Sheet Report that let’s any institution analyze the health of their balance sheet as well as the impact of sweeping or receiving deposits through ModernFi's deposit network.

At their simplest, deposit networks connect institutions with deposits to institutions that need funding. By doing so, they become a powerful tool in a bank’s toolkit, allowing the ALCO to strategically and tactically manage their balance sheet by dialing up or dialing down deposits as needed.

Crucially, networks provide significant benefits to depositors in the form of extended insurance. The FDIC directly highlighted this use in their May 1 paper, Options for Deposit Insurance Reform, where they state that “larger, institutional depositors … may also use their resources to expand their deposit insurance coverage beyond the $250,000 limit by using deposit services such as brokered deposits, reciprocal deposits, and sweep accounts.” Given the recent banking turmoil, the prospect of additional insurance has been crucial for many depositors and the banks working to retain them.

The Report, which is free to use, works simply. Enter your email and the banking institution that you would like to analyze. The Report will generate a quick overview of the institution’s liabilities and assets, and will also show the impact of sweeping deposits off balance sheet as well as the impact of receiving deposits from other institutions. You can change the amount to sweep or receive directly in the Report, and all assumptions and disclosures are provided at the bottom of the page.

Sweeping deposits reduces the size of a bank’s balance sheet, improving any metric that relies on asset size in the denominator. Sweeping has the potential to improve net interest margin, return on assets, and capital ratios. In a typical sweep or reciprocal program, the institution sweeps uninsured deposits into the network to provide extended insurance to depositors from the receiving banks, which improves the percent of uninsured deposits on book.

Receiving deposits increases the size of the bank’s balance sheet, with the potential to have a meaningful impact on liquidity. Cash balances, liquidity available, and the composition of the balance sheet towards liquid assets all potentially improve. Network funding requires little overhead, improving efficiency, and, as received deposits are normally insured, uninsured exposure can also improve.

Folks that are interested in learning more about how a deposit network can improve the health of their institution and their depositor experience should check out the Balance Sheet Report. To reach out to us directly, hit “Get Started” and the ModernFi team will be in touch!

Best,

The ModernFi Team

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Sources: FHLB Advances are an average of FHLB Boston, FHLB Chicago, and FHLB Des Moines. Brokered CDs are an average of Fidelity and Vanguard. Listed CDs provided by National CD Rateline. US Treasurys and LIBOR provided by WSJ. SOFR provided by CME.

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