What is Deposit Reclassification: The Concept and Process
A financial institution with large Reserve Requirement can use Deposit Reclassification
to significantly lower its Federal Reserve Balance. A large balance is immediately
returned to the financial instution, and Deposit Reclassification keeps its Reserve
Requirement to a minimum from then on.
Transaction Subaccounts
Deposit Reclassification splits each transaction account
into two separate subaccounts, a transaction (checking) subaccount and a non-transaction
(savings) subaccount. This distinction only exists in the Deposit Reclassification
program. Your host processor and your members do not see any change.
Throughout each month, as the account holder deposits and withdraws money, the Deposit
Reclassification program automatically transfers the balances in each subaccount
to reflect the transactions in the original account. The new transaction subaccount
is fully reserved on, while the new non-transaction account does not carry a reserve
requirement.
Transfer Threshold Levels
The savings subaccounts, like all non-transaction accounts,
carry no reserve requirement, but are limited to six electronic withdrawls per month.
Deposit Reclassification is therefore limited to six withdrawls per month from the
non-transaction subaccount. Because these transfers are used to keep the transaction
subaccount to a minimum positive balance, the optimal timing and amount of these
transfers (the transfer threshold) is key to a successful Deposit Reclassification
system.
Our implementation
optimizes each member's transfer threshold based on their transaction history.