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#2169314 - 03/21/18 01:15 PM Special Rates for Special People
Jenny Roberts Offline
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Tennessee
Is it okay for an officer of a bank, at their discretion, to allow a higher rate on a deposit account for a specific customer or customers as long as senior management is okay with it? For example, giving a higher interest rate to a customer that has a larger deposit account.

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#2169318 - 03/21/18 01:28 PM Re: Special Rates for Special People Jenny Roberts
rlcarey Online
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rlcarey
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Galveston, TX
There are no fair deposit laws, but it must drive your ALM people nuts. They usually set deposit rates for a reason.
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#2169326 - 03/21/18 01:45 PM Re: Special Rates for Special People rlcarey
Jenny Roberts Offline
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Tennessee
It's the bank president that wants to offer a special checking account rate for certain people so he is part of the ALM group........

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#2169335 - 03/21/18 01:59 PM Re: Special Rates for Special People Jenny Roberts
Dan Persfull Offline
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Bloomington, IN
at their discretion

Any time this is mentioned the hairs on the back of my neck start tingling.

IMHO any pricing variation/exception regardless if for deposits or loans should be based on criteria established by senior management and how the variation/exception should be approved.

It's not uncommon to negotiate higher deposit rates for larger deposits but again there should be criteria for doing so. "At their discretion" is going to eventually get someone in trouble.
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#2169347 - 03/21/18 02:27 PM Re: Special Rates for Special People Jenny Roberts
Dog Lady Offline
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For a small community bank, people using discretion is common and I think acceptable as long as it's limited. Like Dan said, make sure there's established criteria and procedures for obtaining and documenting approval. Our bank allows officers to approve deposit rate variance, at their discretion, up to X over the stated rate. So it's limited. Plus, Senior Management periodically looks at reports of non-standard/special rates. When rates are adjusted, special rates are re-considered to see if they might start fitting into the standard rate bucket.

Larger banks lose control quickly and more strict criteria and procedures should be established to prevent people from making bad decisions.

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#2169362 - 03/21/18 03:06 PM Re: Special Rates for Special People Jenny Roberts
rlcarey Online
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rlcarey
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Galveston, TX
Depending on your regulator, just make sure that these certain people are not related to the bank:

12 U.S. Code § 376 - Rate of interest paid to directors, etc.

No member bank shall pay to any director, officer, attorney, or employee a greater rate of interest on the deposits of such director, officer, attorney, or employee than that paid to other depositors on similar deposits with such member bank.
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#2169370 - 03/21/18 03:28 PM Re: Special Rates for Special People rlcarey
Jenny Roberts Offline
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Posts: 182
Tennessee
Thanks everyone!

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#2169518 - 03/22/18 12:03 PM Re: Special Rates for Special People Jenny Roberts
edAudit Offline
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You are here
While it may (or may not) be legal think of the reputational risk. What would happen if it was on the front page of the local newspaper?
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#2169531 - 03/22/18 01:44 PM Re: Special Rates for Special People Jenny Roberts
Elwood P. Dowd Offline
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Next to Harvey
In my experience "special people" are the buddies of some bank personnel...

Provide those empowered to set higher rates with objective criteria and a requirement to notify the CEO or CFO whenever they exercise their authority.
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#2284887 - 05/23/23 08:56 PM Re: Special Rates for Special People Dan Persfull
ComplyCycle Offline
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I understand we still do not yet have fair banking laws but in light of the focus on overdrafts/multiple representment NSF fees/deposit account practices in general recently, is it still true that our main concern with respect to rate exceptions on deposit accounts is to have guidelines, allowable exceptions, document standards, and a consistent practice?

Are there any other elements to be considered? Thank you.

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#2284900 - 05/23/23 11:25 PM Re: Special Rates for Special People Jenny Roberts
Rocky P Online
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My issue is if they are incentivized for deposits. it’s to the detriment of the stockholders, as they are in essence generating their own bonuses.
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#2284915 - 05/24/23 03:57 PM Re: Special Rates for Special People Jenny Roberts
ComplyCycle Offline
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Originally Posted by Jenny Roberts
Is it okay for an officer of a bank, at their discretion, to allow a higher rate on a deposit account for a specific customer or customers as long as senior management is okay with it? For example, giving a higher interest rate to a customer that has a larger deposit account.

Thank you, Rocky. I am more focused on higher rates for non-bank personnel, mainly those customers with larger deposit balances. I believe we should be ok with this as long as we have established, written guidelines, the required documentation/support for the rate increase, and consistency.

Is this accurate?

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#2284916 - 05/24/23 04:17 PM Re: Special Rates for Special People Jenny Roberts
rlcarey Online
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Not sure what else there would be to do if you are going to move forward with it.
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