Below, we excerpt from the December issue of our Money Fund Intelligence newsletter.... This month, MFI talks with money fund industry veteran Jeff Avers, who is now VP of Liquidity Product Strategy and Consulting at SunTrust. Avers led a panel in October at the Miami AFP conference entitled, "Regulatory Reform and the Impact on Corporate Liquidity Management," so we asked him to repeat some of his talk's themes and to tell us about Basel III, developments in sweep accounts and the expiration of unlimited FDIC insurance. Our Q&A follows.

MFI: How long has SunTrust been involved in cash management? How long have you been involved? Avers: [SunTrust has been involved in cash management] since the Bank's inception, 100+ years ago. I have been involved in the Cash Management and Liquidity industry for roughly 25 years, and have been with SunTrust since January 2008.

MFI: Tell us about SunTrust's sweep and deposit programs. What choices do you offer? Avers: We offer the following options: Repo, Money Fund (Treasury, Government and Prime), and SunTrust Banks, Inc. Master Notes (parent company master note).

MFI: What are the yields like vs. money funds? Avers: Generally the yield on passive sweep investments are below the yield of a direct investment into a money fund or other self-directed investment options. Our sweep clients benefit from the convenience of the automated daily investment process.

MFI: Tell us about the decision to jettison the RidgeWorth (formerly STI Classic) funds. Do you still offer money funds? Avers: We continue to offer a suite of non-proprietary money funds to our clients. The Ridgeworth money funds -- which were our proprietary money funds -- were merged into comparable asset class Federated funds in 2010.

MFI: What's the biggest challenge in the cash management space today? Avers: Great question. The biggest challenge overall is the tenure of today's historically low-rate environment. This has created a challenging environment for all providers of short-term investment products, including banks. Keep in mind that as it relates to interest-bearing deposits, a bank needs to earn a return on the deposit that exceeds the rate the bank pays for the deposit. This is very different than the money fund industry, which earns a fee based on assets under management, or a broker-dealer that earns a commission on the sale of an investment product.

MFI: What has it been historically? Avers: The biggest challenge historically for SunTrust and the banking industry in general, has been capturing the banking industry's fair share of the interest-bearing portion of corporate and institutional cash. Bank deposits are not sexy. In the 90's and earlier this millennium more of the short-term cash market share was enjoyed by more complicated products, including money funds. Over the last few years investors have opted for the simplicity of bank deposits.

MFI: Can you talk about the expiration of the unlimited FDIC insurance program? Do you expect it to expire? What can clients do? Avers: I won't speculate on whether Congress will take action. However, I do believe clients should be prepared with a plan B -- which is whether or not to reallocate their cash portfolio away from their fully insured corporate checking accounts and into another asset class should the unlimited guarantee expire on Dec. 31, 2012. According to the 2012 AFP Liquidity Survey, 59% of corporates do not plan on making a significant change to their checking account balances. Among the 41% that do plan on making a significant change the most popular options cited are: Prime Money Funds (17%); Treasury Money Funds (16%); Treasuries/Agencies (14%); Repo (6%); and, Other (8%). We have been assuming that the 59% that don't plan on making any significant changes are both (1) comfortable with their existing bank and (2) interested in continuing to enjoy the relative value of the Earnings Credit Rate that the bank treasury management industry has been paying its clients over the last 4-5 years.

Watch for more excerpts from this interview in coming days, or write us at info@cranedata.com to request the full article in our latest MFI newsletter.

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