BMO Harris Bank (or "BMO") is a long-standing provider of banking services and financing to broker/dealers nationwide.  BMO Harris Bank is part of BMO Financial Group, a North American financial organization with approximately US$500 billion in assets (as of Oct. 31, 2014).

Q:  How will Basel III impact banks' ability to service their broker/dealers clients in the future?

Basel III regulation will impact banks' ability to service their broker/dealer clients in the same manner as has historically been the case.  Basel III is affecting banks in two aspects.  First, under the Basel III Liquidity Coverage Ratio, banks will be required to make a determination between "core" deposits and "non-core" deposits.  Non-core deposits, particularly deposits provided by financial institutions including broker/dealers, will be required to be covered by High Quality Liquid Assets and will not be available to fund a bank's loan portfolio.  The effect of this will be to reduce banks' appetite for non-core deposits and/or reduce the interest rates that banks will be willing to pay for such deposits.  This will have the largest impact on firms that hold meaningful amounts of customer deposits.  As such firms will need to find non-bank investment alternatives for their 15c3-3 deposits.

Secondly, Basel III is also impacting the treatment of undrawn committed credit facilities.  Banks' will be required to hold High Quality Liquid Assets to support undrawn credit facilities to ensure that banks will be able to meet their funding obligation under such facilities in an environment of stressed liquidity.  This requirement will likely increase the cost of undrawn credit commitments and may cause banks to ration their offering of facilities that are generally undrawn or have limited drawn amounts.

Q:  Are there other trends that BMO is observing in the broker/dealer market?

Liquidity management is a key focus by the market and the regulators over the past several years.  Accordingly, we have experienced an increased demand by broker/dealers for committed lines of credit to ensure that funding is available should capital market funding alternatives become limited.

In addition, we have observed a number of our competitors restricting or eliminating the intra-day credit capacity that they offer to their clients.  This can create delays in the wire transfers of funds to clients as well as pre-funding requirements for underwritings and DTC/OCC settlements.

Q:  How is BMO responding to the changes in regulation and trends in the market?

Naturally, the cost of regulation is being borne across the entire financial services industry.  While we cannot avoid or ignore those costs, we are working with our clients to find alternatives to bank deposits and unfunded loan facilities that meet our clients' requirements and potentially offer a more attractive proposition.  With respect to the requirement for committed lines of credit, we have offered to a number of clients incremental committed lines of credit or converted existing uncommitted lines of credit to committed facilities.

With regard to intra-day credit capacity, BMO views intra-day credit as an important component to the smooth operation of our broker/dealer clients' daily funds flows.  We are keenly aware that deadlines exist in the funding of clearing house and depository settlements as well as to facilitate underwriting or other client activity.  BMO carefully assesses our clients' intraday capacity needs from a credit and liquidity risk perspective and attempts to facilitate our client needs to the greatest extent possible.

Q:  What should our BDA members know about BMO Harris and its offering to the industry?

BMO has delivered services to the Securities Industry through a dedicated, Chicago-based team for more than 40 years.  Our team is staffed with highly-knowledgeable relationship professionals maintaining, on average, over 19 years of experience.  We presently serve more than 50 broker/dealers throughout the United States and are one of the most active settlement banks to Depository Trust Company and Options Clearing Corporation.

BMO is investing heavily in this client segment with a robust Fed Item Clearance Platform.  In 2015, BMO will be establishing direct transaction messaging capability between its Fed Item Clearance Platform and several of the back office technology platforms currently utilized by our clients.  Also in 2015, BMO will introduce a state-of-the-art wire transfer platform that will efficiently process client payments domestically and internationally.

Most importantly, BMO seamlessly integrates its Credit, Treasury Product and Operating staffs to ensure that we fulfill your transaction processing needs on a timely and high-quality basis.

BDA Member Profiles

The BDA regularly features and profiles member firms through these emails and the BDA website. For more information, please contact Mike Nicholas at [email protected] or (202) 204-7901.