Service Expertise Integrity

Windy City Summit CTP Review

Chapters 3

Presented by: The Northern Trust Company Dan Carey, CTP

© 2012 Northern Trust Corporation

Chapter 3

Managing Relationships with Service Providers

Dan Carey, CTP 2 Windy City Summit CTP Review Service Expertise Integrity

3

Financial Institutions, Functions and Services

■ ■ Global Financial Institutions US Commercial Banks Deposit Accounts Credit Services Investment Banking Services Payment and Collection Services Trade Services Foreign Exchange Services Risk Management Services Fiduciary Services ■ Investment Banking and Brokerage Firms Investment Banks  Origination  Underwriting  Distribution Windy City Summit CTP Review Service Expertise Integrity

Financial Institutions, Functions and Services

■ Other Financial Services Savings Institutions Credit Unions Mutual Funds 4 Windy City Summit CTP Review Service Expertise Integrity

Financial Service Provider Selection Process

■ ■ Selection Criteria Soliciting Information from Financial Service Providers RFI and RFP RFQ ■ Selection Decision 5 Windy City Summit CTP Review Service Expertise Integrity

Bank Relationship Management

■ ■ ■ Number of Bank Relationships Documentation Performance Measurement and Evaluation Bank Scorecard Relationship Review ■ Bank Compensation Practices Fee versus Balance Compensation 6 Windy City Summit CTP Review Service Expertise Integrity

Global Account Management

■ ■ Sovereign and Political Risk Value Dating 7 Windy City Summit CTP Review Service Expertise Integrity

8

Account Analysis in the US Commercial Banking System

■ ■ Account Analysis Standards Account Analysis Terminology Average Ledger Balance – sum of daily ending balance divided by number of days in analysis period Average Deposit Float – sum of daily dollar amount of items in process of collection divided by number of calendar business days in analysis period Average Collected Balance – sum of daily ending collected balances (+ and -) divided by number of days in analysis period Reserve Requirement Service Charges Available or Investable Balance Earnings Credit Allowance Windy City Summit CTP Review Service Expertise Integrity

Account Analysis in the US Commercial Banking System

■ Account Analysis Calculations EC = CB x (1-RR) x ECR (D/365) EC = Earnings Credit CB = Average Collected Balances RR = Reserve Requirement ECR = Earnings Credit Rate D = Number of Days in Month CB = SC / ECR x (D/365) x (1-RR) 9 Windy City Summit CTP Review Service Expertise Integrity

Monitoring Financial Service Provider Risk in the United States

■ ■ ■ ■ Monitoring Financial Risk Managing Confidential Information and Conflicts of Interest Assessing Financial risk for Financial Institutions The Camels Rating System Capital Adequacy Asset Quality Management Capability Earnings Liquidity Sensitivity to Market Risk ■ Basel 1 and 2 10 Windy City Summit CTP Review Service Expertise Integrity

Other Topics in Managing Service Provider Relationships

■ ■ ■ Benchmarking Bank Pricing Counterparty Risk Off Shoring of Financial Services 11 Windy City Summit CTP Review Service Expertise Integrity

Questions for Chapter 3

12 1. Describe 7 reasons why companies initiate the process of selecting a financial institution. 2. Describe 5 factors that increase the mutual benefit and profitability of a bank relationship. 3. Describe 3 characteristics of value dating. 4. Describe 5 components of the account analysis statements that the U.S. banks provider to commercial customers. 5. What are 2 ways that Banks present service charges.

6. Describe 2 reasons for the development of non-bank and third party financial service providers. 7. Describe items typically requested in a Request for Proposal.

8. Differentiate among 6 components that make up Camels rating system. 9. Describe 4 types of political risk. 10. Describe 6 types of non-bank financial institutions. Windy City Summit CTP Review Service Expertise Integrity