CHAPTER V.

4 Sweep Accounts
Angela Cantillon and Chrystal Pozin Franzke

CONTENTS
Overview................................................................... V.4-1 History of Sweep Accounts....................................... V.4-1 The Current Sweep Marketplace ............................... V.4-1 Benefits of Sweep .................................................. V.4-2 Investment Sweep Instrument Options...................... V.4-3 Money Market Instruments .................................... V.4-3 Depository Instruments .......................................... V.4-3 Offshore Instruments.............................................. V.4-4 Money Market Mutual Funds................................. V.4-4 Other Sweep Options ................................................ V.4-4 Sweeping vs. Investing Directly................................ V.4-5 Operating Details of a Sweep.................................... V.4-6 Cutoff Time............................................................ V.4-6 Effective Date ........................................................ V.4-7 Fee Structure ............................................................. V.4-7 Rate ....................................................................... V.4-7 Fee......................................................................... V.4-7 Target Balances ..................................................... V.4-8 Sweep from the Banks Perspective ......................... V.4-8 Benefits to the Bank .............................................. V.4-8 Issues in Offering a Sweep Product....................... V.4-9 Conflicts Within the Bank ................................ V.4-9 In-House vs. Outsourcing the Money Fund Investment Instrument .................................... V.4-10 The Effort to Repeal Regulation Q ................. V.4-10 The Future of Sweeps ............................................. V.4-11 Exhibit V.4.1: Commercial Banking Sweep Account Assets ....................................................... V.4-12 Exhibit V.4.2: 2005 Commercial Sweep Asset by Sweep Instrument .............................................. V.4-13 Exhibit V.4.3: Tiered Rate Example....................... V.4-14

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OVERVIEW One investment service that has gained widespread attention in the past decade is the overnight sweep account. A sweep is a cash management service that automatically links a commercial depository account (DDA) with an investment account, and without customer intervention adjusts depository account balances to a predetermined target level by transferring funds to or from the investment account as needed. This product is important because it offers businesses a convenient and automated way to invest in a variety of instruments. Additionally, Regulation Q of the Federal Reserve Act of 1933 prohibits the payment of interest on corporate demand deposit accounts. Users of sweeps are most likely to be businesses that have operating cash at the end of a business day. If that cash exceeds the predetermined target balance, the excess funds are swept into an investment account to earn interest. In addition, banks benefit by offering sweeps because they can charge a fee for the service, earn spread income, and maintain customer assets. HISTORY OF SWEEP ACCOUNTS Sweep accounts were first used in the early 1980s by a select number of large banks that were faced with the threat of losing some of their larger corporate customers deposits to non-banks. At this time, sweeps were largely manual, not widely marketed, and were only made available to customers with huge balances that represented an opportunity for the bank. The banks knew that if they did not offer an investment alternative to these customers, the customers would take their deposits out of the bank and invest them somewhere else. This process is called disintermediation: the decline of demand deposit balances as funds flow into non-bank instruments. Over the years, however, sweep has evolved into a significant product that banks now use offensively and market aggressively. Contributing to this change has been the growth of the mutual fund marketplace. In addition, corporate downsizing in recent years has narrowed treasury staff, making marginal activities such as the daily investment of operating cash more susceptible to automation. Traditionally, banks had been reluctant to remove any assets in DDA accounts since that money represents inexpensive funding to the bank. If banks do not provide an interest-earning alternative for corporations short-term cash assets, customers will place them outside of the bank (e.g., with a mutual fund company or broker/dealer). In the past five years, banks have gained considerable market share to become the dominant distribution channel for corporate short-term investments. Nearly 66 percent of all corporate short-term investments are made through banks. To continue to gain a higher percentage of their customers assets, banks have taken an offensive strategy toward reclaiming customer assets currently invested outside the bank. THE CURRENT SWEEP MARKETPLACE Today sweep accounts are a thriving entity in their own right, and banks are becoming proactive in the product management and marketing of the sweep product. The offensive approach to
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sweeps is evidenced by the rapid growth of sweep assets, which have grown in assets from $20 billion in 1991 to $368 billion in 2005 (See Exhibit V.4.1). Banks offer a variety of sweep investment instruments, ranging from repurchase agreements, commercial paper, master notes, Fed Funds, offshore instruments, MMDAs, and money market mutual funds. Growth within the various instrument categories varies considerably. Money market mutual funds continue to represent the largest share of sweep assets, accounting for 33 percent of total assets (Exhibit V.4.2). Sweeps to offshore instruments represent the second largest share of sweep assets in 2005 (32 percent). Benefits of Sweep Bank customers stand to gain many unique benefits from investing in sweeps. Prioritization of the benefits differs by company size, sophistication, and capital structure. This list represents a wide range of perceived benefits.

Liquidity. The opportunity to be fully invested yet have same-day access to invested funds
is viewed as a strong positive for sweep accounts.

Convenience. The passive nature of the product is attractive to large and small companies
alike. Corporate downsizing has afforded treasury managers with less time to shop daily rates for investment opportunities, especially operating cash which will only be invested for seven days or less.

Fully invested. Customers take comfort in the fact that they are fully invested to a
predetermined target balance level. Their investment is mechanical; there is no need to call a broker and specify an investment instrument or an amount. If late day wires come in, the cash manager does not need to work out a cash position at the end of the day to figure out how much money can be invested. It occurs automatically.

Odd lots. A sweep program allows smaller dollar increments to be invested on a regular
basis. Most competitive overnight instruments require minimum denominations that are out of reach for most small companies.

Safety. With FDIC insurance limited to $100,000, customers perceive sweeps as providing
a measure of safety. Since no investments over $100,000 are insured, it is safer to diversify ones portfolio with a multitude of instruments. Additionally, investment in a U.S. Treasury bill or a money market fund that invests in prime instruments is considered safer than a bank demand deposit account.

Selection. Sweep accounts can offer a variety of investment options. This is a very real
benefit to companies in need of tax-advantaged instruments. It is also a perceived benefit for those companies that want to choose from a variety of investment options.

Yield. Most accounts that sweep solely into overnight investments are at a yield
disadvantage to other money market instruments. Bank sweeps offer investment options with longer maturities and, therefore, competitive yields. The customer also receives the benefit of sweeping into a larger cash pool. The investment management company or bank
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that provides the sweep pools all customers cash together, affording an opportunity of scale for higher returns. Each customer can invest as much or as little as he/she likes and receive the same returns as someone who invests a larger dollar amount. However, banks will sometimes tier sweep rates based on target balances or customer segment. INVESTMENT SWEEP INSTRUMENT OPTIONS As noted above, there are many sweep instruments available to bank customers. Each has different characteristics and benefits. The most common underlying investments for sweep products are overnight instruments, depository instruments, offshore depository instruments, and money market mutual funds. Another sweep not discussed here is a loan sweep. This is not an investment; it is an automatic transfer of funds to pay down a loan. A description of each sweep instrument is presented below. Money Market Instruments Money market instruments used in sweep programs are high-quality debt obligations. Most are repurchase agreements of U.S. Treasury securities. Money market instrument sweeps declined by 2 percent from 2004 to 2005 and represent a declining share of the overall sweep market, dropping from 80 percent in 1991 to 31 percent in 2005. Repurchase agreements are the most common sweep instruments because they are permitted by almost all corporate investment policies. A repurchase agreement is an agreement whereby the investor purchases a U.S. Treasury security from a bank and the bank agrees to buy it back the next day. As U.S. Treasuries, they are risk-free, and they offer 100 percent liquidity. The tradeoff is that there is no opportunity to extend the maturity along the yield curve. Therefore, repurchase agreements (repos) offer the lowest rate of return on an investment. However, the safety and liquidity aspects of the instrument make many corporate investors likely to sweep at least a portion of their short-term investible funds into repos. Other types of overnight instruments used in sweep programs include commercial paper, Fed funds, and master notes. Commercial paper is an unsecured promissory note issued for a specific amount with a maturity of 270 days or less. Fed funds are funds deposited by commercial banks at Federal Reserve banks, including funds in excess of bank reserve requirements. Banks may lend federal funds to each other on an overnight basis at the federal funds rate to help the borrowing bank satisfy its reserve requirements or liquidity needs. Master notes are a form of borrowing between highly rated companies and the trust departments of major banks. The amount loaned can fluctuate daily. Depository Instruments In a depository account sweep, customer assets are moved into a domestic, interest-bearing deposit account, usually a money market deposit account (MMDA). They represent a small share (less than 4 percent) of the overall sweep market, being offered primarily by smaller banks or to small business customers. MMDAs have severe legal restrictions in that customers are prohibited from making more than six automatic withdrawals per month for three months consecutively. Therefore, some banks will sweep funds into the MMDA and leave the funds in the MMDA until the customer needs to withdraw those funds. This differs from other sweep instruments where
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the funds are swept out every night and swept back into the account the next morning. Companies wishing to sweep very actively and frequently need to take this rule into consideration when deciding which sweep instrument to use. Offshore Instruments Offshore instruments used in sweep programs are deposits into offshore affiliates of U.S. banks. The most common iteration of this product is the Eurodollar sweep. Offshore instrument sweep assets remained steady from 2004 to 2005 and now represent 32 percent of total sweep assets. Offshore investments appeal to the larger, more sophisticated investor. They have slightly more risk than a repo, since they are deposits in non-U.S. countries and operate in a different regulatory environment. Offshore deposits are generally offered by larger banks and often require high investment minimums. The advantage is that offshore instruments offer higher returns to offset the additional risk. Money Market Mutual Funds Money market mutual funds used in sweep programs are high-quality, short-term mutual funds managed by either the sweeping bank or a third-party advisor. The mutual funds most often used by sweeps are U.S. government or prime commercial paper funds. Several banks offer tax exempt funds as part of their sweep. Money market mutual fund sweeps represent an increasing share of the overall sweep market, rising from 11 percent in 1991 to 33 percent in 2005 (Exhibit V.4.2). Large banks are more likely to offer proprietary mutual funds because they have enough customer assets from within their own customer pool to do so. Some bank proprietary fund families include KeyCorps Victory Funds, Bank of Americas Nations Funds, JPMorgans One Group Funds, and PNC Banks Blackrock Funds. Other companies offer third-party mutual funds for banks to use and sell to their customers. Among the largest third-party mutual fund providers are Fidelity Investments, Federated Investors, AIM Fund Management Company, Goldman Sachs, and SEI Corporation. There are several reasons a bank would use a third-party mutual fund instead of a proprietary fund. Smaller banks are more likely to use a third-party fund since they can pool their customers assets with a larger pool of assets and offer a variety of funds to their customers with higher rates through economies of scale. In addition, banks can avoid the high start-up costs of establishing a mutual fund. OTHER SWEEP OPTIONS Another type of sweep is a loan or credit sweep. Rather than sweeping into an investment vehicle, a loan sweep works by using customer funds in excess of a target balance to pay down a loan or a line of credit. Banks that offer a loan sweep generally also automatically draw down from the loan when funds are below target level in the customers DDA.

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More than one-third of U.S. commercial banks offer a loan sweep product. It is considered a sweep product in that it is automatic (i.e., requires no action on the part of a corporate customer) and sweeps funds in excess of the target balance. However, rather than earning interest by investing, the customer is reducing interest expense by paying down a loan. Some banks offer a product that links a loan sweep with an investment sweep and, depending on the customers cash position, will either sweep to pay down part of a loan or sweep into an investment on a given day. SWEEPING VS. INVESTING DIRECTLY Those considering use of a sweep frequently ask the question, Why would I want to relinquish control of my investment decisions, foregoing the opportunity to shop around for the best rates before making my investments? The answer to this question requires an understanding of the four major categories of corporate cash. A large corporation normally has significant cash, assuming it is not a net borrower. This cash can be classified into four major categories: operating cash, reserve cash, accumulation cash, and committed cash. Reserve cash represents balance sheet assets above and beyond operating cash, which is likely to be used by the company over the course of a business cycle and which cushions the company during hard times. Reserve cash might include assets being held for equipment replacement or technology upgrades. Accumulation cash represents cash which a company amasses for strategic, rather than operating, needs. Money earmarked for an acquisition or to fund a stock buy-back would be considered accumulation cash. Committed cash represents liquid assets for which there are specific legal or regulatory requirements. Examples of committed cash are money in an escrow account, a sinking fund, regulatory reserves, and a nuclear decommission trust fund. The fourth category of cash consists of operating cash. It is this category of cash which should be used for sweeping. Operating cash is the liquidity required to meet the companys normal operating requirements over a 90-day time horizon. It is operating cash that is most susceptible to being swept. Historically, investments of operating cash have consisted almost exclusively of directly purchased money market instruments, such as repo and commercial paper. Investments of operating cash are made on a repetitive basis with a select group of banks and securities firms with whom the company deals. Corporations will decide how long to hold based on their policies (less than seven days). The longer term nature of the other three asset categories is much less appropriate for a sweep, and lends itself to a more involved investment strategy. For investments of cash in these three types, the corporate treasurer should perform the traditional functions of creating an appropriate maturity structure, riding the yield curve, and investment rate shopping. For operating cash investments, the trend has shifted away from direct investment and toward packaged products and automated sweep accounts for three main reasons. First, todays treasury investor does not have the time he/she once did to manage daily overnight investments. Second, in the operating cash category, achieving superior investment performance is less important than avoiding material long-term underperformance or losses or rigidly adhering to investment policies. The earnings differential between sweep and active investments for operating cash can be negligible.
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Third, automated products offer the guarantee of being fully invested every day, regardless of late day transactions. OPERATING DETAILS OF A SWEEP The decision to use an investment sweep comes with many choices. There are many options concerning what instrument(s) to sweep into, the return the investor wants to earn, the price the investor is willing to pay for the service, the cutoff time for the investment, and whether the transaction is booked the same day or the day after the sweep occurs. Each bank offers a different product or multiple products; however, it is rare for a corporate customer to choose a bank solely based on its sweep services. Sweep is a service that complements other bank product usage such as treasury management services. For a monthly fee and/or a pricing spread, the bank will take over these responsibilities, allowing the corporate treasurer more time to spend handling its longer term investments. The monthly fee is a flat rate varying from $10 $450 which the customer pays no matter what amount is swept. Another variable is the spread that the bank takes for itself. Unlike the monthly fee, the spread is measured in basis points, or a percent of the assets being swept. One basis point is .01 percent, and its cost is deducted from the return of the investment. When evaluating the cost/benefit of a sweep account, the interest income earned on a sweep minus the associated fees should be compared to earnings credit rate (ECR) the bank would be paying minus the banks 10 percent reserve requirement on DDA balances. In addition, the customer must be using enough bank services to make the ECR rate worthwhile. The decision as to whether one is a good candidate for sweep must be made carefully. A profitability analysis is a good way to determine whether a bank customer would make or lose money by sweeping. Additionally there are tax implications that can impact a corporations decision to pay bank fees in hard (fees) or soft dollars (credit toward cost of services). Example. XYZ Corporation maintains average collected balances of $500,000 net the banks reserve requirement of 10 percent at Bayshore Bank. For these balances, Bayshore Bank pays XYZ an average ECR of 5 percent. This is enough money to pay for $2,083 worth of bank service charges per month. If XYZ Corporation only uses $1,000 worth of bank service charges, it could sweep. If XYZ sweeps everything in excess of $300,000, it would still have enough balances to pay for bank services, and it would be earning approximately $10,000 a year interest income if it sweeps into an investment that carries a 4 percent yield. Sweeps function in a multitude of operating environments. Aside from the fairly rigorous menu of instruments being offered, sweep products vary in their day to day operating details. Cutoff Time Each sweep product has different rules regarding the time of day that the sweep is amount is calculated. The three main categories within this area are morning, afternoon, and end-of-day cutoffs. Some sweeps strike a balance in the DDA account sometime in the morning to determine what amount
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will be swept. Other sweeps use an afternoon business hour balance, and still others look at the DDA balance at the end of the day, after all transactions have been posted. Most banks use an end-of-day cutoff for their sweeps. The benefit of sweeping end-of-day balances is that there is never a question of sweeping funds which may be needed for business purposes later in the day. With an intraday sweep, the company may learn later in the afternoon that it needs funds that were swept that morning for some immediate purpose. It then has to borrow the necessary money or pay an overdraft fee. Alternatively, the company may receive unexpected funds late in the afternoon, which will go uninvested overnight because the sweep amount was already calculated. The drawback to sweeping at the end of the day is that for some instruments rates may be lower than earlier in the day. Even this may not be a drawback for sweeps that use a managed, rather than an actual, rate, or for sweeps into a money fund where the rate is determined at the end of the day. Effective Date This refers to the day on which the investment becomes effective. Some sweep investments become effective on the same day as the sweep transaction, and others on the next day. This depends on the sweep instrument, as well as the individual banks policy. For example, 95 percent of repurchase agreements are booked on a same-day basis, but only two-thirds of money market funds are booked on the same day. FEE STRUCTURE Rate The interest rate earned on a sweep can be stated in many ways. The rate may be a managed rate, set at whatever level the bank determines, and adjusted upward or downward at the banks discretion. This would be most likely when the sweep instrument is under the banks control, such as in a Eurodollar sweep or an MMDA sweep. A rate may also be stated as some number of basis points less than a recognized market rate for example, 50 basis points less than the Fed Funds rate. (A basis point is 1/100 of 1 percent. If Fed Funds are 5 percent, then 50 basis points less than Fed Funds is 4.5 percent.) Finally, if the sweep investment is a money market fund, the rate will be determined each day by the fund administrator. All shareholders of a money fund earn the same rate, although different classes of shares can have different management and selling fees, as detailed in the funds prospectus. Sometimes a bank pays tiered rates in exchange for higher investment amounts. The first several thousand dollars will earn one rate; the next several thousand will earn a higher rate, etc. A hypothetical example for a $200,000 overnight sweep amount is shown in Exhibit V.4.3. Fee Banks frequently charge a monthly fee for each sweep account, ranging from $10 $450. The fee is a direct source of income to the bank. The amount of the fee often reflects the type of
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customers the bank is trying to attract to the sweep product. A lower fee ($10 $50) may indicate the bank is targeting small business and private customers to the sweep, because the investment amount needed to cost-justify a low fee is quite small. A higher fee ($100+) typifies a middle market to large corporate focus. Target Balances The target balance is a predetermined account balance above which the funds will be swept into the sweep investment vehicle. Similarly, if the account balance falls below the target, funds will be redeemed from the investment and moved to the bank account. The target balance is a vital tool for the bank in positioning its sweep product to be profitable. While customers want the lowest target possible in order to sweep as much money as possible, the bank benefits by having higher targets. There are several reasons why banks set a target balance, instead of sweeping all DDA balances at the end of the day. First, the bank wants to maintain some DDA balances, since it earns money on these balances. Second, some banks like to have their services paid for with balances. Third, when a sweep product has an early cutoff time, the customer needs to maintain balances for intraday funding purposes. Fourth, by imposing a target balance, banks can use the sweep as a tool to increase customer assets, since customers may bring additional money into the bank to make them eligible for the sweep. This process is known as re-intermediation. Target balances may be set individually for each customer, depending on their level of service usage and/or their available sweep assets. Alternatively, the target balance may be set at a fixed level for all customers, or certain categories of customers. There is a strong interplay between these three fee components the fee, the rate, and the target balance. A high target, a low monthly fee, and an attractive rate can encourage even smaller corporations to bring external funds into the sweep. Combined with a very high monthly fee, even a low target and good rate may be unappealing to all but the largest investors. A low target, low monthly fee, and low rates will encourage bank customers to convert DDA balances to sweep, but will not likely draw substantial additional assets to the product. SWEEP FROM THE BANKS PERSPECTIVE Benefits to the Bank Banks have many reasons for offering a sweep product. The design and implementation of a sweep product plan can mean gains or losses to the bank in a seven-figure range, depending on the size of the bank. Therefore, it is prudent for banks to devise a sweep product strategy that is attractive to bank customers, as well as profitable to the bank. A number of economic, regulatory, and competitive factors are coming together, which enable a bank to benefit in several ways from a sweep account product line. The reasons below are all illustrative of the benefits a bank sees in offering a sweep product.

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Income. Sweep account fees are attractive, ranging from $10 per month to $450 per month
per account. Spread income also nets banks significant profits, typically bringing in over four times the sweep account fee income.

Visibility of client assets. Assets that banks are sweeping are assets that banks know are not
being invested elsewhere, especially with their non-competitors. Often, when banks offer a sweep product, customers bring in additional assets besides the ones that were already residing within the bank. This is called the new money multiple and represents a reversal of the disintermediation process discussed earlier.

Balance sheet management. Money market and trust sweeps move customer deposits off
the banks balance sheet. Reserve requirements on those deposits are eliminated, which represents a cost reduction, and lowers the capital needed to support the balance sheet.

Recapture of lost asset. Many companies, particularly smaller ones, directly invest in
money market mutual funds (Fidelity and SEI are most frequently mentioned). A sweep product provides a reason for customers to close those accounts and consolidate investments at their bank.

New business development. Banks are discovering that sweep accounts can be an effective
offensive weapon in developing new business.

Increased bank service usage. Customers who use sweeps are more likely to use other cash
management services, such as account reconciliation, positive pay, and lockbox. Issues in Offering a Sweep Product Conflicts Within the Bank A sweep product impacts different business units within the bank in different ways. The cash management department wants to see sweep assets grow as much as possible. This provides their department with service charge revenue and asset-based fees. Since cash management does not necessarily get credit for balances in excess of service charge requirements, they are less concerned about cannibalizing those balances with a sweep product. The banks treasury department may see advantages or disadvantages to sweep. When balances are swept into, for example, mutual funds, it removes assets from the banks balance sheet, which lessens the reserve requirement the bank must keep on hand at the Federal Reserve. This is a benefit. On the other hand, the balances represent a low-cost source of funds, for which Treasury is probably compensating cash management or the lending unit. Sweep removes some of these balances, which may have to be replaced through some other, higher-cost means. It is possible to avoid balance cannibalization of a banks demand deposits with a comprehensive sweep strategy. If a bank takes the time to position its sweep product properly, it can gain substantial revenue while retaining significant demand balances. If the bank is careful to set its target balances high enough and actively markets the product to attract new assets to the bank, the sweep can be a win-win situation. In addition, there is the very real possibility that without a

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sweep product, relationships will migrate to other banks, and the precious balances will be lost for good. In-House vs. Outsourcing the Money Fund Investment Instrument Some banks develop their own money fund sweep investment vehicles while others outsource to a third-party provider. In most cases, banks that use a third-party fund, rather their own proprietary fund, are smaller banks. They do this to avoid the start-up costs of developing a new money fund, as well as for the ability to pool their customers sweep assets with a larger pool of assets and offer lower expense ratios and higher rates of return. This especially makes sense when banks want to offer a specific type of mutual fund, such as a municipal tax-free fund, which may not have a large number of investors at any one bank. Whether a bank uses a proprietary or third-party money fund should not be a major concern to a corporate customer. In either case, the corporate customer must be comfortable with the risk/return components of the fund. The Effort to Repeal Regulation Q An increasing number of financial professionals have been lobbying for the repeal of Federal Reserve Regulation Q, the offshoot of the 1933 Federal Reserve Act, which prohibits banks from paying interest on demand deposits. The legislative bill H.R. 974 introduced by Rep. Sue W. Kelly on March 13, 2001, entitled the Small Business Checking Act of 2001, passed the House of Representatives on April 3, 2001, and was introduced into the Senate on April 4, 2001. The bill has three provisions: to repeal the prohibition of the payment of interest on business demand deposits which would authorize interest-bearing business checking accounts, to allow for up to 24 monthly withdrawals from money market deposit accounts, and to increase the Federal Reserve Boards flexibility in setting reserve requirements. Proponents of this bill contend that Reg Q is antiquated and outdated. The Association of Financial Professionals (AFP), an organization representing over 10,000 treasury professionals, endorses this proposed legislation. Different forms of the bill to repeal Regulation Q have appeared before Congress in 2002, 2003, 2004, and 2005, although the bill has not yet been passed into law. In addition, in their 1996 Joint Report, Streamlining of Regulatory Requirements, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of the Thrift Supervision stated that they believe that the prohibition of interest payments on business checking accounts no longer serves a public purpose. It is important to recognize that the Act does not require depository institutions to pay interest on demand deposits. Instead, the Act merely removes the prohibition on banks paying explicit interest on demand deposits thereby providing institutions with more flexibility in how they structure their balance sheets and the product mix that they offer their corporate customers. As with consumer checking accounts today, institutions may offer a range of different business demand accounts including those on which interest is paid.

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THE FUTURE OF SWEEPS Total sweep assets grew sharply during 2005, recovering from a couple of years of relatively flat growth. During the low interest rate environment over the previous couple of years, some companies found that the return on their sweep accounts was not enough to cover their monthly sweep fee, and they decided to shut down their sweep service. As sweeps became less attractive, corporations moved sweep assets into direct purchases of money market mutual funds and DDAs/MMDAs. The interest rate environment in 2005, rising rates with a flat yield curve, resulted in corporations shifting balances back into sweep products. However, the decline in sweep balances in the low rate environment indicated that sweep accounts are now very much a mature product and are subject to changes in the overall market. In the current regulatory environment, and with treasury functions continuing to run with lean staffs, the assurance that corporations operating cash will be fully and automatically invested is a significant benefit of the sweep product.

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EXHIBIT V.4.1 Commercial Banking Sweep Account Assets

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EXHIBIT V.4.2 2005 Commercial Sweep Asset by Sweep Instrument

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EXHIBIT V.4.3 Tiered Rate Example

Amount $0-25,000 $25,001-50,000 $50,001-100,000 >$100,001 Total

Tiered Rate 4.45% 4.65% 4.85% 5.00%

Amount Earning Rate 25,000 25,000 50,000 100,000 $200,000

Overnight Earnings 3.05 3.18 6.64 13.70 $26.58

Earnings Per Year 1,112.50 1,162.50 2,425.00 5,000.00 $9,700

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