There are many professions where incentive compensation is a big part of overall compensation. My profession is one of them. So I have occasionally been the grateful recipient of an incentive paycheck. An actual check. Yesterday was such a day, and I dutifully went to my bank to deposit it.
There was a teller line. When my turn arrived, I made my deposit. The teller, likely prompted by her terminal with an anti-money laundering inquiry, awkwardly asked if I was expecting the check. Being an industry consultant, I expected such a question. If I was not in the industry, I may have found it intrusive.
The teller was very nice. She informed me that there likely would be a hold on the funds for a short amount of time. I also knew this to be the case, as the bank waited for the funds to clear. I told her I expected the hold. She wasn't sure of the hold time, and said it would be on the receipt. Bank policy, baked into their teller system. When it printed, she informed me the funds would be available 13 days from today. Thirteen days. Let that sink in a bit.
In my car, I began to think of the money I would have to move to compensate for this inconvenience. I had year-end tax planning, charitable contributions, and an upcoming holiday trip to fund. Then the nerve was struck.
Those that know me, know I have a long fuse. And for SIFI Bank (Systemically "Important" Financial Institution), the fuse expired. Why was I making accommodations to account for money that SIFI Bank would soon have, but would not let me have? IT'S MY $#*%!^@$! MONEY!
I marched back in and asked to speak with the manager, who seemed a little nervous because the teller informed her why I was there. The manager explained to me that sometimes these checks bounce. Anger level, up a notch.
I have an idea how long it takes SIFI to collect those funds. The check was either imaged immediately at the teller station or would be imaged a little later in the day in the branch. The courier no longer picks up the check, takes it to a central location that takes it to the Fed for clearing, later to be sent to the introducing bank for remittance to SIFI. The image goes out that night, and the funds are plunked at SIFI immediately or the next day.
The typical bank customer would not know the details of check clearing and might accept the branch manager's answer. Unfortunately for her, I knew the money would be at SIFI in one or two days. A business model based on the ignorance of your customers should not be sustainable!
I can imagine the SIFI meeting in the treasurer's office on the 14th floor in [Insert City Name Here, but far from my hometown]. Treasurer: What's our float on hold funds? Assistant: $22 billion today, and it has been steady the past month. Treasurer: Great! Let's put that money to use so we can help make our budget! Special thanks to the Compliance folks on the 12th floor for this little gift of long-term holds! (Note to SIFI: This is a hypothetical discussion typed in jest. Do not alert the attorney's on the 8th floor. Thank you.)
All because, what, Compliance determined that there might be a regulatory risk on large check deposits after the money was collected? Customers might be funding El Chapo's getaway!? But in terms of using hold funds to juice earnings... it hasn't worked well for this SIFI because their 10-year compound annual growth rate for earnings and dividends per share was -1.6% and -4.4% respectively. Those are negative numbers, folks. But it could be enough to earn the CEO Banker of the Year!
These rules that are hatched by bureaucrats and implemented over large geographies are the very reason community banks should be beating the crap out of my bank and other SIFI banks. The hold period was on the teller receipt! I doubt there is anybody in Pennsylvania, where my branch is located, that weighed in on that decision.
A community bank COO once told me that he left a large bank because he began to feel like he was being asked to do things to his customers instead of for them. Today folks, I felt like SIFI Bank did something to me.
But alas. Community banks continue to be market-share challenged against my and other SIFIs. Why?
Note: Lest you wonder why a community financial institution consultant banks with a SIFI bank... It wasn't my choice. My community bank was acquired by it. But once the dust settles, it will be my choice! And folks, it is now six days (three business days) past when I made the deposit and the funds are not yet available to me and the branch manager that promised to look into it has not called.